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ANNUAL REPORTjbhifi .com.au

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Financial SummaryCOMPANY SECRETARY

Richard Murray

SHARE REGISTRY

Computershare Investor Services Pty Limited

Yarra Falls 452 Johnston Street Abbotsford, Victoria, 3067, Australia

1300 302 417 (Australia)

+61 3 9615 5970

REGISTERED & PRINCIPAL ADMINISTRATION OFFICE

14 Spink Street Brighton, Victoria, 3186, Australia

+61 3 8530 7333

* Current as of 30 June 2007

STORE LOCATIONS

JB HI-FI STORES*

VIC

Ballarat

Brighton

Broadmeadows

Camberwell

Chadstone

Dandenong

Epping

Essendon

Frankston

Geelong

Heidelberg

Highpoint

Keilor

Knox

Maribyrnong

Melb City (Bourke Street,

Melb City (Elizabeth Street,

Lonsdale Street & Elizabeth Street

Cameras)

Narre Warren

Nunawading

Prahran

Preston

Ringwood

Southland

Watergardens

Werribee

NSW

Bondi

Castle Hill

Chatswood

Erina

Glendale

Hornsby

Leichhardt

Liverpool

Macarthur Square

Macquarie

Miranda

Mt Druitt

Newcastle

Parramatta

Penrith

Sydney City

Tuggerah

Warringah Mall

Woolongong

QLD

Brisbane City

Capalaba

Carindale

Chermside

Gold Coast

Indooroopilly

Ipswich

Kawana

Kedron

Loganholme

Macgregor

Robina

WA

Cannington

Midland Central

Myree

Osborne Park

Perth City

Whitford

SA

Adelaide City

Colonnades

Elizabeth

Marion

Modbury

ACT

Belconnen

Canberra City

Woden

NT

Casuarina

New Zealand

Queen St

CLIVE ANTHONYS*

QLD

Carseldine

Capalaba

Labrador

Mt Gravatt

Mermaid Waters

NSW

Tweed Heads

HILL & STEWART*

Auckland

Mt Wellington

St Lukes

Albany

Wairau Park

New Lynn

WestCity

Hobsonville

Botany Downs

Manuaku City

Pukekohe

Takanini

FINANCIAL PERFORMANCEYear to 30 June 2007 2003* 2004* 2005 2006 2007 %

Sale revenue ($m) 355.8 452.4 639.9 945.8 1,281.8 36%

EBIT ($m) 16.7 22.8 34.7 44.5 65.5 47%

NPAT ($m) 8.6 13.8 19.5 25.8 40.4 56%

Earnings per share 8.4 13.5 19.0 25.0 38.8 55%

*2001-2004 fi gures based on AGAAP

Sales +36%Sales grew 35.5% to

$1,281.8 million

2001

$154.9m

2002

$248.8m

2003

$355.8m

2004

$452.4m

2005

$693.9m

2006

$945.8m

2007

$1,281.8m

NPAT +56%Net profi t after tax grew

56.5% to $40.4 million

$2.6m

20022001

$6.2m

2003

$8.6m

2004

$13.8m

2005

$19.5m

2006

$25.8m

2007

$40.4m

Stores13 new stores were opened,

1 closed and 11 acquired,

taking the total stores to

89 at the year end

2001

15

2002

21

2003

26

2004

32

2005

48

2006

66

2007

89

2001

$5.7m

2002

$11.6m

2003

$16.7m

2004

$22.8m

2005

$34.7m

2006

$44.5m

2007

$65.5m

EBIT +47%Earnings before interest

and tax grew 47.3% to

$65.5 million

JB Hi-Fi Limited ABN 80 093 220 136

CORPORATE INFORMATIONABN 80 093 220 136

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1

Dear fellow shareholder,

JB Hi-Fi Limited (referred to below as JB Hi-Fi)

achieved revenue growth of 36%, EBIT growth of

47% and NPAT growth of 56% for the year ended

30 June 2007. During the year 13 JB Hi-Fi stores

were opened.

Result

JB Hi-Fi has delivered another record result with sales

up 36% on the prior year. This was achieved through

a combination of strong comparative stores sales,

continued expansion of our product offering, the

maturing of the 18 stores opened last year and the

opening of 13 new stores during the year.

Whilst competition remains intense and the product mix

has switched to lower margin categories,

JB Hi-Fi’s low cost of doing business, together with its

improved buying, has insulated it from any signifi cant

margin pressure. Margin declined slightly by 39 base

percentage points to 22.1% over the year. Product mix,

in particular the continued rapid expansion of games

and JB Hi-Fi’s entry into the computer market, has

been the main factor contributing to this slight decline.

JB Hi-Fi continued to focus on cost control with the cost

of doing business falling to 16.0% (last year 17.1%). This

continues to reinforce JB Hi-Fi’s ability to deliver on its

every day low pricing strategy and makes it increasingly

diffi cult for competitors to offer similar pricing on a

consistent basis. We have been successful in lowering our

costs at a faster rate than our margin has declined and

consequently our EBIT margin has expanded 41 base

points to 5.1%.

Cashfl ow generated from operations was $64.0 million,

refl ecting strong cash generation from established stores.

These stores continue to generate signifi cant cash, which

has fi nanced the 13 new stores and the acquisition of

Hill & Stewart Appliances Limited in FY07. Debt remains

at conservative levels, with net debt consistent with the

prior year at $95m, interest cover of 8.2 times and a

fi xed charges cover ratio of 2.9 times. Return on Equity

of 36%, up 3% (last year 33%), refl ects the low capital

intensity of the business model.

13 new JB Hi-Fi stores were opened during the year with

a high proportion of these being in shopping centres.

JB Hi-Fi is relatively unique in its ability to successfully

bring “big box categories” such as TVs and audio to

shopping centres. The high level of foot traffi c through

the centres reduces JB Hi-Fi’s reliance on advertising

and provides a boost to convenience categories such

as music, movies, games, phones and accessories.

Of the 13 new stores opened during the year, 4 were

opened in Victoria, 3 in Queensland, 2 in New South

Wales, 2 in Western Australia and 1 each in South

Australia and New Zealand. The rollout will continue in

07/08 fi nancial year. JB Hi-Fi continues to be a sought

after tenant of all the major shopping centre groups

thereby ensuring new stores can be opened in good

locations with favourable rentals. Newly opened

stores continue to mature in line with expectations.

JB Hi-Fi has achieved critical mass now in all the

regions in which it operates in Australia such that the

store expansion program is likely to continue to help

reduce the overall cost of doing business.

JB Hi-Fi continues to be able to attract and retain

a knowledgeable and enthusiastic workforce as

the rapid growth of the business provides tangible

career progression with increased responsibility and

compensation prospects. This has been the case even

in newer territories where the JB Hi-Fi brand is not as

well recognised. JB Hi-Fi believes a key component of

its success is the strong relationship it has built with its

employees, which continues to be an on going focus for

the board and management.

The market place in which JB Hi-Fi operates continues

to be dynamic, with emerging growth categories such

as portable audio and games replacing some of the

growth produced in past years from TVs, audio and

cameras. Technology continues to drive same store

sales growth as JB Hi-Fi is at the forefront of these new

categories providing one of the widest ranges of branded

products at discounted prices.

JB Hi-Fi has had considerable success expanding into

new product categories:

● Games - JB Hi-Fi’s success in the games market

has continued since its introduction in May 2005.

We continue to capture an increasing share of an

$800 million annual market. Management estimate

we are now the second largest retailer of electronic

games in Australia.

Chairman’s and Chief Executive Offi cer’s Report

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CHAIRMAN’S AND CHIEF EXECUTIVE OFFICER’S REPORT (continued)

● Computers - In May 2006, JB Hi-Fi announced its

entry into the $1.5 billion computer and IT market,

which is growing at 20% per annum. We are

very pleased with progress to date with JB Hi-Fi

achieving signifi cant sales in this category as we

grow to be a substantial player in this category.

● Mobile consumer electronic/telecommunications -

In June 2007, JB Hi-Fi announced its entry into the

mobile consumer electronic/telecommunications

market, which is growing at 20% per annum. While

the telecommunications market is a large market

in itself, with digital convergence, the market

complements many of JB Hi-Fi’s existing categories

including computers, portable audio, digital camera’s

and media and suits our customer base of young,

mobile and tech savvy consumers.

JB Hi-Fi’s discount positioning and specialist sales

people will ensure competitiveness with other

retailers. We have completed our rollout in our

Victorian stores with promising early sales. The NSW

rollout will be completed before Christmas, with the

national rollout to be completed by June 2008.

The new categories of computers and

telecommunications are the largest markets in which we

operate, and should assist in driving sales in our existing

categories.

The outlook for new products remains healthy with the

increased affordability and functionality of products such

as LCD and Plasma TVs, new gaming consoles, DVD

recorders and a broad array of electronic accessories.

Clive Anthonys

The company acquired the remaining 30% of Clive

Anthonys from its founder Clive Savage in July 2007 for

circa $7 million. JB Hi-Fi management took operational

control of the company early in the second half and

has enjoyed some immediate success with second

half comparative store growth increasing to 15.7%. We

remain encouraged that the Clive Anthonys business

provides access to the large whitegoods, cooking and air

conditioning markets whilst leveraging JB Hi-Fi’s volumes

in browngoods, computers and games. The fi rst Clive

Anthonys store outside of Queensland was opened at

Castle Hill in Sydney in July 2007 and is trading well.

New Zealand Expansion

The company’s acquisition of the eleven-store New

Zealand chain Hill & Stewart was completed on

1 March 2007. The purchase price was A$19.2 million,

a multiple of seven times normalised 06/07 EBIT (year

ends 31st March).

The acquisition was a good opportunity for the Company

to acquire a solid base and infrastructure for its

expansion into the New Zealand market. Hill & Stewart

is a well-managed and successful company, with a great

presence in Auckland and strong relationships with

suppliers.

The New Zealand consumer electrical market is more

fragmented than the Australian market. We expect

that the discount positioning of JB Hi-Fi will appeal to

New Zealand consumers which, together with the Hill

& Stewart business, will quickly propel the company to

within the top three of electrical retailers in the country.

The fi rst JB Hi-Fi store opened in April 2007 and

we expect to open three new JB Hi-Fi stores before

Christmas, with fi ve JB Hi-Fi stores expected to be

trading by the end of 07/08.

1

6

18

5

2312

24

Total Stores: 89

(JB Aust. 71, CA 6, JB NZ 1, H&S 11)

Board, Corporate Governance and

Management Approach

The relationship between the Board and management

remains engaging and constructive. To date, JB Hi-Fi

has continually exceeded the expectations set by the

Board. It remains the Board’s strategy to encourage

experimentation with new products, merchandising

formats, advertising and property locations in a

controlled and responsible manner. The Board fi rmly

believes that equity participation through JB Hi-Fi’s

employee option plan remains a critical tool in attracting

new management, retaining existing management and

rewarding performance whilst maintaining a strong

alignment of interests with shareholders.

The Directors announced on 28 August 2007 that

Mr Patrick Elliott would resume the Chairmanship of

the Board of Directors effective 1 September 2007.

Mr Elliott joined the Board in July 2000 following the

management buy-in and was the Chairman until March

*

* As at 30 June 2007


3

2006. At that time he announced that he would step

down as Chairman but remain as a non-executive

Director, to allow him to focus on establishing his

private investment business. Mr James King who

replaced him as Chairman in March 2006 will continue

as a Non Executive Director and take on the additional

responsibility of Chairman of the Audit Committee. The

board thanks Mr King for his valuable stewardship over

the past 18 months.

Dividend

JB Hi-Fi will pay a fi nal dividend of 6.0 cents per share

fully franked for the year ended 30 June 2007, up

50% from the same payment last year. This brings

total dividends for the year to 11.0 cents per share,

up 45% on last year. Moving forward it is likely that

almost all of the funding required for the company’s

new store program will be internally generated. In

increasing the dividends for the 06/07 fi nancial year, the

Board has considered the current and forecast fi nancial

performance of the business and anticipated capital

requirements in the short to medium term, including the

new store rollout program, ongoing capital expenditure,

the purchase of the remaining 30% of Clive Anthonys,

the recently completed acquisition of Hill & Stewart in

New Zealand and current and expected performance

against key fi nancial ratios. It is the Board’s objective to

grow dividends in order to maintain an effi cient

capital structure.

Outlook

The 2007/08 fi nancial year will again be challenging

as higher interest rates, turbulence in global fi nancial

markets and the impact of higher fuel prices fi lter

through to the broader economy. However, the

maturing of 31 stores opened in the last two years, our

recent expansion into computer and mobile electronics

(telecommunications), our expansion into New Zealand,

together with JB Hi-Fi’s discount positioning and

merchandising of new technologies should continue to

drive sales growth.

A continued new store opening program with openings

in many of Australia’s biggest shopping centres will see

a more signifi cant presence for JB Hi-Fi outside of its

traditional Melbourne base. With sales forecast of around

$1.7 billion in the 07/08 year, the group will reinforce

its position as one of Australia’s largest retailers and a

leader in home entertainment products.

Your Board and management remain focused on

the key success drivers of the business – having the

biggest range and the lowest prices, supported by

talented and enthusiastic staff.

Patrick Elliott Richard Uechtritz

Chairman CEO

Melbourne,

10 September 2007


Annual Financial Reportfor the fi nancial year ended 30 June 2007

Page

Chairman’s and Chief Executive Offi cer’s Report 1

Corporate Governance Statement 5

Directors’ Report 11

Auditor’s Independence Declaration 27

Independent Audit Report 28

Directors’ Declaration 30

Income Statement 31

Balance Sheet 32

Statement of Changes in Equity 33

Cash Flow Statement 34

Notes to the Financial Statements 35

Additional Stock Exchange Information 67

Corporate Information IBC



JB Hi-Fi’s directors and management are committed to ensuring that the company’s business is conducted ethically

and in accordance with high standards of corporate governance. This statement describes JB Hi-Fi’s approach to

corporate governance.

The Board believes that JB Hi-Fi’s policies and practices comply in all substantial respects with the ASX Corporate

Governance Council Principles of Good Corporate Governance. JB Hi-Fi respects and values the rigour of the ASX

Principles of Good Corporate Governance and Best Practice Recommendation in force as at 30 June 2007. The

Board believes that it has been compliant with the spirit of The Corporate Governance Principles and Best Practice

Recommendations during the 2007 fi nancial year.

The Board has determined having regard to the company’s current size, not to establish a Nominations Committee.

The Board has retained this responsibility. In August 2004, the Board completed a process of reviewing and adopting

formal policies and procedures with regard to Corporate Governance. The Board continually reviews and monitor

developments in respect of corporate governance to ensure compliance with best practice.

THE BOARD

Role

The primary role of the JB Hi-Fi Board is to protect and enhance long-term shareholder value. The Board is

accountable to shareholders for the performance of the company, it directs and monitors the business and affairs of

the company on behalf of shareholders and is responsible for the company’s overall corporate governance.

The Board responsibilities include the corporate governance of the company, overseeing the business and affairs

of the company, communicating with the company’s shareholders and the community, evaluating the performance

of senior executives, ensuring that appropriate procedures are in place so that company business is conducted in

an honest, open and ethical manner and the establishment of a formal and transparent procedure for the selection,

appointment and review of Board directors.

The Chief Executive Offi cer, who is accountable to the Board, is responsible for managing, directing and promoting

the profi table operation and development of the Group.

A copy of the Board Charter can be found on the company’s website at www.jbhifi .com.au

Composition

The Board seeks to ensure that the combination of its members provides an appropriate range of experience, skills,

knowledge and perspective to enable it to carry out its obligations and responsibilities. In reviewing the Board’s

composition and in assessing nominations for the appointment of non-executive directors, the Board uses its own

internal resources to identify candidates for appointment as directors. External resources may also be used, if suitable

candidates are not identifi ed.

The Board considers that its current structure, size, focus, experience and use of committees enable it to add value

to the company and to operate effectively. The Board regularly reviews this balance.

JB Hi-Fi maintains a majority of non-executive directors on its Board. The Board currently comprises six directors,

comprising four independent non-executive directors, including the Chairman, and two executive directors, including

the Chief Executive Offi cer.

Details of the directors as at the date of this report, including their experience, expertise and term of offi ce are set out

in the Directors’ Report in the Annual Report.

Independence

The JB Hi-Fi Board regards directors as independent directors if they are free from any business or other relationship

that could compromise their ability to act in the best interests of the company.

If a confl ict of interest arises, the director concerned does not receive the relevant Board papers and is not present

at the meeting whilst the item is considered. Directors must keep the Board advised, on an ongoing basis, of any

interests that could potentially confl ict with those of the company. Directors are required to promptly disclose to

5

CORPORATE GOVERNANCE STATEMENT


6

the Board interests in contracts, other directorships or offi ces held, possible related party transactions and sales or

purchases of the company’s shares.

Selection and Appointment of directors

In considering Board membership, the directors are conscious of the need to ensure that Board members possess

the diversity of skill and experience required to fulfi l the Board’s obligations. The Board considers nominations for

appointment to the Board. Apart from the Chief Executive Offi cer, directors are subject to shareholder re-election by

rotation at least every three years.

A copy of the procedure for the selection and appointment of Directors can be found on the company’s website at

www.jbhifi .com.au.

Board meetings

The Board meets monthly for scheduled meetings. Dependent on business requirements, the Board may have such

additional unscheduled meetings as the business of the company may require. Prior to any meeting, the Directors

receive all necessary Board papers. As well as holding regular Board meetings, the Board sets aside time to meet to

comprehensively review business plans and company strategy.

Access to information and Independent advice

Each director has the right of access to all relevant company information and to the company’s executives and,

subject to prior consultation with the Chairman, may seek independent professional advice at the company’s

expense.

Pursuant to a deed executed by each director and the company, a director also has the right to have access to all

documents which have been presented at Board meetings or made available in relation to their position as director

for a term of 7 years after ceasing to be a director or such longer period as is necessary to determine relevant legal

proceedings that commenced during this term.

Code of Ethics

JB Hi-Fi acknowledges the need for directors, executives and employees to observe the highest ethical standards

of corporate behaviour. JB Hi-Fi has adopted a Code of Ethics to provide an employee with guidance on what the

company deems is acceptable behaviour.

The key elements of the code are:

As a company:

(a) respecting every employee’s dignity, rights, freedoms and individual needs;

(b) providing a working environment that is safe, challenging and rewarding;

(c) recognising the work of each of our employees;

(d) respecting customers’, suppliers’ and employees’ personal and sensitive information;

(e) reinforcing JB Hi-Fi’s commitment to the highest standards in business and professional ethics; and

(f) obeying the law.

As employees:

(a) treating customers, the public and fellow employees with honesty, courtesy and respect;

(b) respecting and safeguarding the property of customers, JB Hi-Fi and fellow workers;

(c) maintaining confi dentiality of all customers, JB Hi-Fi or other parties’ information gained through our work;

(d) performing our duties, as best we can, taking into account our skills, experience, qualifi cations and position;

(e) doing our jobs in a safe, responsible and effective manner;

CORPORATE GOVERNANCE STATEMENT (continued)


7

(f) respecting personal and sensitive information in accordance with Privacy Legislation;

(g) ensuring our personal business and fi nancial interests do not confl ict with our duty to JB Hi-Fi;

(h) working within JB Hi-Fi’s policies and rules; and

(i) obeying the law.

The company has developed appropriate policies and guidelines to assist employees in applying the code in practice.

A copy of the Code of Conduct can be found on the company’s website at www.jbhifi .com.au

Shareholdings of directors and employees

Directors’ current shareholdings are detailed in the company’s Annual Report and as updated by notifi cation to the

Australian Stock Exchange as required. The Board has approved a Share Trading Policy for dealing in securities.

Directors and employees may only trade in JB Hi-Fi shares and any other JB Hi-Fi securities during designated

Trading Periods, which are conducted several times each year. These Trading Periods will follow the release of

JB Hi-Fi’s Final Results (Aug/Sept), Interim Results (Feb/March) and the Annual General Meeting (Oct/Nov), for a

period of four weeks. Any transaction conducted by directors in shares of the company is notifi ed to the Australian

Stock Exchange.

A copy of the Share Trading Policy can be found on the company’s website at www.jbhifi .com.au

INTEGRITY OF REPORTING

The company has put in place controls designed to safeguard the company’s interests and to ensure the integrity

of its reporting. These controls aim to ensure that the company complies with all regulatory requirements and

community standards.

Both the Chief Executive Offi cer and Chief Financial Offi cer are required to state in writing to the Board that:

(a) the company’s fi nancial reports represent a true and fair view, in all material respects, of the Group’s fi nancial

condition and operational results and are in accordance with relevant accounting standards;

(b) the statement in (a) is founded on a sound system of risk management and internal compliance and control

which implements the policies adopted by the Board; and

(c) the company’s risk management and internal compliance and control system is operating effi ciently and

effectively in all material respects.

The company’s fi nancial statements are subject to an annual audit by an independent, professional auditor who also

reviews the company’s half yearly fi nancial statements. The Audit and Risk Management Committee oversees this

process on behalf of the Board. The company’s external audit fi rm was most recently appointed in 2002. The audit

engagement partner is rotated every fi ve years in line with the agreement between the audit fi rm and JB Hi-Fi.

Information on procedures for the selection and appointment of the external auditor, and for the rotation of external

audit engagement partners can be found on the company’s website at www.jbhifi .com.au

Continuous Disclosure

The company seeks to provide relevant and timely information to its shareholders and is committed to fulfi lling its

obligations to the broader market for continuous disclosure. JB Hi-Fi aims to ensure timely provision of equal access

to material information about the company.

The Board has approved a continuous disclosure policy to ensure that the procedures for identifying and disclosing

material and price sensitive information in accordance with the Corporations Act and ASX Listing Rules are clearly

articulated. This policy sets out the obligations of employees relating to the type of information that must be

disclosed. The Company Secretary, in consultation with the Chief Executive Offi cer and Chairman, is responsible for

communication with the Australian Stock Exchange.

A copy of the Continuous Disclosure Policy can be found on the company’s website at www.jbhifi .com.au


8

Shareholders Communications

The company’s website www.jbhifi .com.au currently carries the following information for shareholders:

• All market announcements and related information which is posted immediately after release to the ASX;

• Details relating to the company’s directors and senior management; and

• Board and Board committee charters and other corporate governance documents.

The company will request that the external auditor attend its annual general meeting and be available to answer

shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

A copy of the Shareholder Communication Policy can be found on the company’s website at www.jbhifi .com.au.

RISK IDENTIFICATION AND MANAGEMENT

The Board has delegated to the Audit and Risk Management Committee responsibility for overseeing the

implementation of policies and procedures aimed at ensuring that the company conducts its operations in a manner

that manages risk to protect its people, the environment, company assets and reputation as well as to realise

opportunities. JB Hi-Fi’s policy is to consider the balance of risk and reward, as far as practicable, in order to optimise

the returns gained from its business activities and to meet the expectations of its shareholders. A copy of the

company’s Risk Oversight and Management Policy can be found on the company’s website at www.jbhifi .com.au.

Board performance

JB Hi-Fi monitors and evaluates the performance of its Board, its Board committees, individual directors, and key

executives in order to fairly review and actively encourage enhanced Board and management effectiveness. It has a

range of processes in place to evaluate Board performance, Board Committees, individual directors and executives.

A description of the process for Board performance evaluation, its committees and individual directors, and key

executives can be found on the company’s website at www.jbhifi .com.au

DIRECTORS’ FEES AND EXECUTIVE REMUNERATION

Directors’ fees

In line with the JB Hi-Fi Constitution, total remuneration for non-executive directors must not exceed $400,000 per

annum or any other amount per annum determined by the company in an Annual General Meeting. The Board, within

the aggregate amount of $400,000, determines non-executive directors’ individual fees.

The details of remuneration paid to each non-executive director during the fi nancial year are included in the

company’s Annual Report. Directors receive superannuation in accordance with statutory requirements.

In determining fee levels, the Board reviews data on fees paid by comparable companies and where appropriate, may

receive expert independent advice regarding remuneration levels required to attract and compensate directors of the

appropriate calibre and for the nature of the directors’ work and responsibilities.

Non-executive directors do not participate in any incentive schemes and are not entitled to receive retirement

allowances.

Executive Remuneration

The Board believes that executive remuneration should be fair and reasonable, structured effectively to motivate and

retain valued executives and designed to produce value for shareholders.

At JB Hi-Fi, remuneration of senior executives is evaluated against comparative positions in similar companies and

industries and comprises:

(a) fi xed remuneration; and

(b) variable remuneration consisting of:

(i) short-term incentives (annual bonus based on specifi ed performance targets as agreed with the executive) and

(ii) long-term incentives (options under the JB Hi-Fi Executive Share Option Plan).



9

The Board is aware of the Executive Share and Option Scheme Guidelines, issued by the Investment and Financial

Services Association (IFSA) in May 2000. The Board is satisfi ed that its executive remuneration policies, specifi cally

as they relate to the executive share option plan (as detailed in this Annual Report), are consistent with the aims,

objectives and outcomes detailed in the IFSA guidance note no.12.

The amount of remuneration, both monetary and non-monetary, for the executives who are directly accountable and

responsible for the strategic direction and operational management of the company during the year are included in

the company’s Annual Report.

Details of the existence and conditions of all share and option schemes currently in operation, including the details

of performance hurdles, are summarised and included in the company’s Annual Report and have been lodged with

the ASX.

BOARD COMMITTEES

The Board has established charters for the operation of its committees. The charters are reviewed annually and

objectives are set for each committee. The minutes of these committees are circulated to the Board.

Audit and Risk Management Committee

The Board has established an Audit and Risk Management Committee that has a formal charter.

The committee is charged with, in part:

(a) assisting the Board in fulfi lling its oversight of the reliability and integrity of fi nancial management, accounting

policies, asset management, fi nancial reporting and disclosure practices;

(b) advising the Board on matters of internal control;

(c) establishing and maintaining processes to ensure that there is compliance with all applicable laws, regulations

and company policy; and

(d) establishing and maintaining adequate systems of internal control and risk management.

A copy of the Audit and Risk Management Committee Charter can be found on the Company’s website at

www.jbhifi .com.au

The Audit and Risk Management Committee comprises three non-executive directors all of whom are independent

with relevant fi nancial, commercial and risk management experience and an independent chairperson who is not the

chairperson of the Board:

• Patrick Elliott: ongoing member of committee and chairperson;

• James King: ongoing member of committee; and

• Gary Levin: ongoing member of the committee.

Details of the qualifi cations of each of the non-executive directors are outlined in the Directors’ Report.

The Audit and Risk Committee meets regularly.

Details of the meetings held and members’ attendance during the 2007 Financial Year are listed in the Director’s

Report of the Annual Report. Directors who are not members of a committee may attend any committee meeting

following consultation with the Chairperson of the relevant committee.

Remuneration Committee

The Board has established a Remuneration Committee that has a formal charter.

The Remuneration Committee is charged with, in part, reviewing and making recommendations to the Board

regarding the remuneration and appointment of senior executive offi cers and non-executive directors, policies

for remuneration and compensation programs of the Company generally and administration of remuneration and

compensation programs.


10

The Remuneration Committee comprises three directors, two of whom are non-executive directors:

• James King: ongoing member and chairperson of committee;

• Richard Uechtritz: ongoing member of committee; and

• Will Fraser: ongoing member of committee.

The Remuneration Committee meets as required. Details of the meetings held and members’ attendance during the

2007 Financial Year are listed in the Director’s Report of the Annual Report.

A copy of the Remuneration Committee Charter can be found on the company’s website at www.jbhifi .com.au

Nominations Committee

The Board, having regard to the size of the company, has not established a Nominations Committee.

The Board is charged with, in part, selecting, appointing and regularly evaluating the performance of, determining

the remuneration of, and plan for the succession of the Chief Executive Offi cer; establishing formal and transparent

procedures for the selection and appointment of new directors to the Board; regularly reviewing the succession

plans in place for Board membership to ensure that an appropriate balance of skills, experience and expertise is

maintained; and instituting internal procedures for evaluating Board performance, individual directors and Board

Committees.

A copy of the Board Charter and the Board’s policy for the appointment of directors can be found on the company’s

website at www.jbhifi .com.au



11

DIRECTORS’ REPORT

The directors of JB Hi-Fi Limited submit herewith the annual fi nancial report of the company for the fi nancial year

ended 30 June 2007. In order to comply with the provisions of the Corporations Act 2001, the directors report as

follows:

The names and particulars of the directors of the company during or since the end of the fi nancial year are:

Name Particulars

James King

B.Comm, FAICD

Chairman,

Non-Executive Director

Mr King has over 25 years experience in major multi-national corporations in

Australia and internationally. He was previously with Foster’s Group Limited as

Managing Director Carlton & United Breweries and Managing Director Foster’s

Asia. Prior to joining Fosters, he spent six years in Hong Kong as President of

Kraft Foods (Asia Pacifi c). He is currently a non executive director of IBT Education

Limited, Babcock & Brown Environmental Investments Limited and Trust Company

Ltd. Mr King is also Chairman of Juvenile Diabetes Research Foundation (Victoria)

and on the council of Xavier College. Mr King attended a senior Management

Program at Harvard University and is a Fellow of the Australian Institute of

Company Directors.

Richard Uechtritz

Chief Executive Offi cer and

Executive Director

Mr Uechtritz has over 20 years experience in retailing. He was co-founder of

Australia’s two leading photo chains, Rabbit Photo and Smith Kodak Express.

Mr Uechtritz was also a director of Kodak (Australasia) Pty Ltd. Mr Uechtritz led the

management buy-in of JB Hi-Fi in July 2000.

Terry Smart

Chief Operating Offi cer

and Executive Director

Mr Smart has over 15 years experience in retailing. He is a former director and

General Manager of Kodak’s retail operations. Mr Smart led the implementation

of JB Hi-Fi’s management information systems. He is responsible for the group’s

systems and processes which underpin the store operations. Mr Smart joined the

management buy-in of JB Hi-Fi in July 2000.

Patrick Elliott

B.Comm LLB, MBA (Hon), CA


Mr Elliott is an executive director of Next Capital Pty Limited, a private equity

manager. He is also a non-executive director of Steelforce Holdings Pty Limited

and RPG Holdings Pty Ltd. Prior to founding Next Capital Pty Limited, Mr. Elliott

was an executive director of Macquarie Direct Investment Limited, the private

equity division of Macquarie Bank Limited.

Gary Levin

B.Comm, LLB


Mr Levin has been a director of JB Hi Fi since November 2000. He is currently

Managing Director of Babcock & Brown Environmental Investments Limited and

a director of Natural Fuels Australia Limited and Southern Oil Refi ning Limited.

He was formerly the founder and Managing Director of TLC Dry Cleaners and a

previous joint Managing Director of Rabbit Photo Holdings Limited. He has over

25 years experience running public and private companies in the retail, real

estate and renewable energy fi elds. Mr Levin holds a Bachelor of Commerce and

Bachelor of Laws from the University of New South Wales and is a member of the

New South Wales Bar Association.

Will Fraser

PhD


Dr Fraser retired in 1999 as Chairman and Managing Director of Kodak Australasia

Pty Ltd; an appointment that followed two years in London as a Corporate Vice

President of Eastman Kodak and Regional Business General Manager, Consumer

Imaging of Europe, Africa, India and the Middle East region. He is currently a

member of the Board of Trustees of the Baker Foundation.


12

Directorships of other listed companies held by directors in the 3 years immediately before the end of the fi nancial

year are as follows:

Name Company Period of directorship

Gary Levin Babcock & Brown Environmental Investments Limited Since 2002

James King IBT Education Limited Since 2004

Tattersalls Limited May 2005 to October 2006

Babcock & Brown Environmental Investments Limited Since September 2006

Trust Company Limited Since February 2007

Company Secretary

Richard Murray

B.Comm, Grad.Dip. Applied

Finance & Investment, CA

Mr Murray is a Chartered Accountant with over 10 years experience in fi nance and

accounting. Mr Murray joined JB Hi-Fi as Chief Financial Offi cer in 2003 and took

the business through the IPO (Initial Public Offer) process. Mr Murray is assisted in

his role as Company Secretary by an external consultant specialising in company

secretarial processes and procedures, who attends all Board and committee

meetings.

Principal Activities

The Group’s principal activity in the course of the fi nancial year was the retailing of home consumer products, with

particular focus on:

• consumer electronics (televisions, Hi-Fi, DVD players, home theatres, digital still, video cameras, mobile phones

and accessories)

• electrical goods (whitegoods, computing equipment, kitchen equipment, air conditioners and small electrical

appliances)

• car sound systems (audio and visual)

• music, games and movies from stand alone and shopping centre locations, offering a wide range of leading

brands. There have been no signifi cant changes in the principal activity of the Group during the fi nancial year.

Review of operations

The consolidated profi t after tax of the Group for the fi nancial year, that was attributable to members of the parent

entity was $40,389,000 (2006: $25,813,000) which is 56.5% greater than the consolidated profi t after tax for the

previous fi nancial year.

Consolidated sales for the fi nancial year were $1,281,837,000 (2006: $945,821,000), which is 35.5% greater than

the consolidated sales for the previous fi nancial year.

In preparing the Review of Operations, the directors have omitted material that would otherwise have been included

under s.299A(1)(c) concerning the Group’s business strategies and prospects for future fi nancial years, as they

believe it is likely to result in unreasonable prejudice to the Group or any entity that is part of the Group.

A. OVERVIEW

Objectives of the Group are to create shareholder value through a roll out of the Group’s branded retail stores across

Australia and New Zealand, in both stand alone destination sites and shopping centre locations. The cornerstone of

the Group’s success has been, and will continue to be, its ability to consistently offer everyday low prices. The Group

is able to do this through the scale of its operations, high stock turnover and low cost of doing business.

Management consider the following indicators in assessing the performance of the business:

• Comparable store sales growth;

• Gross margin by store and product category;

DIRECTORS’ REPORT (continued)


13

• Cost of doing business;

• Store EBIT contribution;

• EBIT margin;

• Earnings per share (EPS);

• Financial covenants and measures including gearing, interest cover and fi xed charges ratio;

• Working capital measures including inventory and creditors turnover; and

• Return on capital and return on invested capital.

Dynamics of the Group:

The following factors are considered important in understanding the dynamics of the Group and the main

opportunities and threats that may have a major effect on results regardless of whether they were signifi cant in the

period under review.

Opportunities:

• JB Hi-Fi offers one of Australia and New Zealand’s largest ranges of home entertainment and electrical products

at discounted prices, positioned to appeal to all customers, through its JB Hi-Fi, Clive Anthonys and Hill &

Stewart stores. The Group maintains a low cost operating model designed to underpin competitive pricing in its

store network.

• JB Hi-Fi’s strategic initiatives for growth include:

• targeting high growth segments of the home entertainment market and expansion into computers and

telecommunications;

• focused expansion of Clive Anthonys stores;

• continued roll-out of JB Hi-Fi stores in Australia and New Zealand;

• ensuring recently opened stores mature rapidly and profi tably;

• continuing to improve the effi ciency and profi tability of existing stores; and

• opening new stores - the Group has opened 64 new stores over the last seven years, and has plans to

continue expanding with a number of new stores forecast to open in the 2008 fi nancial year. JB Hi-Fi has a

strong store representation in all mainland Australian states and aims to have fi ve JB Hi-Fi branded stores in

New Zealand by 31 December 2007.

Threats:

• There are a number of factors, both specifi c to JB Hi-Fi and of a general nature, which may threaten the future

operating and fi nancial performance of the Group and the outcome of an investment in JB Hi-Fi. There can be no

guarantee that JB Hi-Fi will achieve its stated objectives or that forward looking statements will be realised;

• The operating and fi nancial performance of JB Hi-Fi is infl uenced by a variety of general economic and business

conditions, including the Australian housing construction cycle, levels of consumer spending, infl ation, interest

rates and exchange rates, access to debt and capital markets, and government fi scal, monetary and regulatory

policies. A prolonged deterioration in general economic conditions, including an increase in interest rates or a

decrease in consumer and business demand, may have an adverse impact on the Group’s business or fi nancial

condition;


14

• Competition - the markets in which JB Hi-Fi operates are fragmented and competitive.

The Group’s fi nancial performance or operating margins could be adversely affected if the actions of competitors

or potential competitors become more effective, or if new competitors enter the market, and JB Hi-Fi is unable to

counter these actions;

• Leasing arrangements - the ability to identify suitable sites and negotiate suitable leasing terms is key to the

Group’s growth plans. Further, management’s ability to renegotiate acceptable lease terms for existing stores

where leases are due to expire is vital to ongoing profi tability; and

• Operating costs - the Group’s ability to consistently offer low prices and operate profi tably is dependent on a

combination of the scalability of its operations, relatively high stock turns and low cost operating structure. It is

important that the Group maintain these drivers of profi tability.

B. REVIEW OF OPERATIONS

Sales and earnings performance:

• The Group recorded a full year net profi t after tax of $40,389,000 for the 12 months ending June 2007, up

56.5% on the previous corresponding period of $25,813,000;

• Total sales were up 35.5% to $1,281,837,000 and comparable store growth was 11.4%. JB Hi-Fi stand alone

12.6%, Clive Anthonys 2.7%;

• Gross margin was 22.1% for the period, down 0.4% from the previous period;

• EBIT was $65,534,000 up from $44,537,000 last year and the resulting EBIT margin was 5.1%, up from 4.7%

for same period last year;

• Cost of doing business continued to improve at 16.0% for the period, improving 102bps from 17.1% for the

same period last year; and

• The Group opened 13 new stores and closed 1 store during the 2007 fi nancial year, all branded JB Hi-Fi.

A further 11 stores were acquired with the acquisition of Hill & Stewart Appliances Limited bringing the total

stores to 89 at year end.

Material developments:

• The Group acquired the Auckland based 11 store electrical chain Hill & Stewart Appliances Limited for

$19,231,000 on 1 March 2007. Hill & Stewart retails white goods, consumer electronics, cooking appliances and

electrical smallgoods to both retail and consumer customers.

Overall returns to shareholders

• Refer to details of dividends paid and declared by the Company in the section below.

C. DETAILS OF INVESTMENTS FOR FUTURE PERFORMANCE

• Investments of $34,406,000 were made during the fi nancial year in capital expenditure projects. A majority of this

capital expenditure related to the 13 new stores opened during the period and the expansion of existing stores to

accommodate our computer offering. These stores are anticipated to contribute towards solid earnings growth in

the 2008 fi nancial year.

• The Group’s investment in Hill & Stewart will provide it with exposure to the substantial New Zealand white and

brown goods markets and provide a base in New Zealand on which to roll out the JB Hi-Fi store model.



15

D. REVIEW OF FINANCIAL CONDITIONS

• The capital structure of the Group has remained stable during the period. The increase in equity during the period

related to ordinary shares issued to employees under the Employee Share Option Plan. The Group’s net debt

remained stable at $94,726,000.

• The key fi nancial covenants included in the company’s fi nancing facilities are the leverage/gearing ratio and fi xed

charges cover.

• The Group has total interest bearing liabilities of $118,434,000 at the end of the period. The Group has a senior

debt facility of $145,000,000 in place, which expires in October 2009, with an option to extend for up to one year

to October 2010. In addition, the Group has an annual working capital facility of $31,814,000 with an additional

seasonal facility in February to April each year of $10,000,000.

E. RISK MANAGEMENT AND CORPORATE GOVERNANCE PRACTICES

The Board has delegated to the Audit and Risk Management Committee responsibility for overseeing the

implementation of policies and procedures aimed at ensuring that the Group conducts its operations in a manner that

manages risk to protect its people, the environment, Group assets and reputation as well as to realise opportunities.

JB Hi-Fi’s policy is to consider the balance of risk and reward, as far as practicable, in order to optimise the returns

gained from its business activities and to meet the expectations of its shareholders.

F. DISCUSSION OF PERFORMANCE

Sales and earnings performance:

• Consolidated sales for the fi nancial year were $1,281,837,000 which is 35.5% greater than the consolidated

sales for the previous fi nancial year.

• The consolidated profi t after tax for the fi nancial year of $40,389,000 is 56.5% greater than the consolidated

profi t after tax for the previous fi nancial year.

This report only discusses the consequences of the company’s performance on shareholder wealth for the last four

fi nancial years, since the company’s listing on the ASX. The following graph plots the closing share price of JB Hi-Fi

on a daily basis since listing on the Australian Stock Exchange.

$1.00

$3.00

$5.00

$7.00

$9.00

$11.00

Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07

The following table details the changes in earnings per share and shareholder wealth since the company listed on the

Australian Stock Exchange.


16

Measures of Performance and Shareholder Value

Movement

FY03(1) FY04(1) FY05 FY06 FY07 FY04 FY05 FY06 FY07

1. Earnings per share 8.4 13.5 19.0 25.0 38.8 61% 41% 33% 55%

2. Shareholder Value Created:

Company share price at the

end of the reporting period ($)

1.71(2) 2.30 3.56 5.08 10.82 35% 55% 43% 113%

Market Capitalisation ($m) 174.6(3) 235.5 366.0 525.6 1,132.1 35% 55% 44% 115%

Enterprise Value(4) ($m) 201.7(3) 262.8 442.0 621.7 1,226.8 30% 68% 41% 97%

Movement in enterprise value

during the fi nancial year ($m)

- 61.1 179.2 179.7 605.1

Dividends paid to shareholders

during the fi nancial year ($m)

- 3.7(5) 7.4 7.4 9.4

Shareholder Value Created(6)

- per annum ($m) 64.8 186.6 187.1 614.5

- cumulative ($m) 64.8 251.4 438.5 1,053.0

1. 2003 and 2004 fi nancial analysis is based on AGAAP results, 2005 onwards is based on A-IFRS results.

2. Values are based on a weighted calculation of the retail and institutional IPO issue price applied to total shares on issue.

3. Values are based on 23 October 2003, the date on which the company fi rst listed on the Australian Stock Exchange. Refer to the company’s

prospectus dated 18 September 2003 for further details.

4. Measured as the sum of market capitalisation and net debt.

5. The dividends paid in the 2004 fi nancial year exclude a special dividend of $10,000,000 paid to shareholders before the company was listed.

6. Shareholder Value Created is measured as the increase in the enterprise value of the Company, plus cash dividends paid during the fi nancial year.

The Company has not returned any capital to shareholders since its listing in October 2003. For further discussion

of the Company’s performance during the fi nancial year, refer to the Chairman’s and Chief Executive Offi cer’s Report

included in the Annual Report to shareholders.

Changes in state of affairs

During the fi nancial year there was no signifi cant change in the state of affairs of the Group.

Subsequent events

The remaining 30% of Clive Anthonys was purchased on 2 July 2007 for circa $7,000,000. There have been no other

matters or circumstances occurring subsequent to the end of the fi nancial year, that has signifi cantly affected, or may

signifi cantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in

future fi nancial years.

Future developments

Disclosure of information regarding likely developments in the operations of the Group in future fi nancial years and

the expected results of those operations is likely to result in unreasonable prejudice to the Group. Accordingly, this

information has not been disclosed in this report.

Environmental regulations

The Group is not involved in any activities that have a marked infl uence on the environment within its area of

operation. As such, the Directors are not aware of any material issues affecting the Group or it’s compliance with the

relevant environmental agencies or regulatory authorities.

Dividends

In respect of the fi nancial year ended 30 June 2006, as detailed in the directors’ report for that fi nancial year, a fi nal



17

dividend of 4.0 cents per share franked to 100% at 30% corporate income tax rate was paid to the holders of fully

paid ordinary shares on 18 October 2006.

In respect of the fi nancial year ended 30 June 2007, an interim dividend of 5.0 cents per share franked to 100% at

30% corporate income tax rate was paid to the holders of fully paid ordinary shares on 16 April 2007.

In respect of the fi nancial year ended 30 June 2007, the directors recommend the payment of a fi nal dividend of

6 cents per share franked to 100% at 30% corporate income tax rate, to be paid to the holders of fully paid ordinary

shares on 11 September 2007.

Indemnifi cation of offi cers and auditors

As provided under the constitution, the company indemnifi es directors and senior offi cers for any loss arising from

any claim by reason of any wrongful act committed by them in their capacity as a director or offi cer. During the

fi nancial year, the company has paid a premium in respect of a contract, insuring the directors and senior employees

against any liability of this nature. In accordance with normal commercial practices, under the terms of the insurance

contracts, the nature of the liabilities insured against and the amount of the premiums paid are confi dential. The

company has not otherwise, during or since the fi nancial year, except to the extent permitted by law, indemnifi ed or

agreed to indemnify an offi cer or auditor of the company or of any related body corporate against a liability incurred

as such an offi cer or auditor.

Directors’ meetings

The following table sets out the number of directors’ meetings (including meetings of committees of directors)

held during the fi nancial year and the number of meetings attended by each director (while they were a director or

committee member). During the fi nancial year, 12 Board meetings, 4 remuneration committee meetings and 5 audit

and risk management committee meetings were held.

Board of Directors Remuneration Committee Audit & Risk Management Committee

Directors Held Attended Held Attended Held Attended

J. King 12 12 4 4 5 5

P. Elliott 12 12 - - 5 5

G. Levin 12 12 - - 5 5

W. Fraser 12 12 4 4 - -

R. Uechtritz 12 12 4 4 - -

T. Smart 12 12 - - - -

Directors’ shareholdings

The following table sets out each director’s relevant interest in shares, debentures, and rights or options in shares or

debentures of the company or a related body corporate as at the date of this report.

Directors

Fully paid

ordinary shares

- direct Number

Fully paid

ordinary shares

- indirect Number

Executive

share options

- direct Number

Executive

share options

- indirect Number

J. King - 32,258 - -

P. Elliott 238,600 110,000 - -

G. Levin 100,000 - - -

W. Fraser - 6,451 - -

R. Uechtritz(i) 4,000,000 - 763,068 -

T. Smart(i) 1,844,345 - 560,258 -

(i) Excludes any options that may be approved by the Board in August 2007. The issue of these options is also subject to shareholder approval at the

company’s Annual General Meeting in October 2007.


18


REMUNERATION REPORT

Details of key management personnel (audited)

The following persons acted as directors of the company during and since the end of the fi nancial year:

J. King Chairman, Board and Remuneration Committee, Non-executive Director

P. Elliott Chairman, Audit and Risk Management Committee, Non-executive Director

G. Levin Non-executive Director

W. Fraser Non-executive Director

R. Uechtritz Chief Executive Offi cer and Executive Director

T. Smart Chief Operating Offi cer and Executive Director

The highest remunerated company and Group executives for the 2007 fi nancial year were:



F. Garonzi General Manager

R. Murray Chief Financial Offi cer

S. Browning Marketing Director

Remuneration policy for directors and executives (audited)

The remuneration committee reviews the remuneration packages of all directors and executive offi cers on an

annual basis and makes recommendations to the Board. Remuneration packages are reviewed with due regard

to performance, data on remuneration paid by comparable companies and where appropriate, the remuneration

committee may receive expert independent advice regarding remuneration levels required to attract and compensate

directors and executives, given the nature of their work and responsibilities.

The remuneration for the 2007 fi nancial year for non-executive directors was $65,000 per annum and $110,000 per

annum for the Chairman. In addition, non-executive directors (including the Chairman) receive fees of $5,000 per

annum, per Board committee to which they are appointed. The remuneration for the 2006 fi nancial year for

non-executive directors was $65,000 per annum and $110,000 per annum for the Chairman.

It is the policy of the company not to pay lump sum retirement benefi ts to non-executive directors. Superannuation

contributions are made by the company on behalf of non-executive directors in line with legislative requirements.

Some non-executive directors, as a result of their personal superannuation circumstances, have notifi ed the company

that they would prefer that their superannuation contributions are received as increased Board fees. Directors also

have the right to enter into salary packaging arrangements with the company. The result of these arrangements is no

net increase to the cost of directors’ remuneration to the company.

At JB Hi-Fi, remuneration of senior executives is evaluated against comparative positions in similar companies and

industries and comprises (a) fi xed remuneration and (b) variable remuneration consisting of (i) short-term incentives

(annual bonus based on specifi ed performance targets as agreed with the executive) and (ii) long term incentives

(options under the JB Hi-Fi Executive Share Option Plan).

The Board is aware of the Executive Share and Option Scheme Guidelines, issued by the Investment and Financial

Services Association (IFSA) in May 2000. The Board is satisfi ed that its executive remuneration policies, specifi cally

as they relate to the executive share option plan (as detailed in this Annual Report), are consistent with the aims,

objectives and outcomes detailed in the IFSA guidance note no.12.

Elements of remuneration Summary of performance condition

Base salary packages includes base

salary, motor vehicle provisions or

allowances, other benefi ts and post

employment superannuation

No elements are dependent on performance conditions.


19

Elements of remuneration Summary of performance condition

Cash bonus (short term incentive) Under the Group’s short term incentive program, Group executive directors

and Group executives annual cash bonus payments are based on

performance against annual budgets, business plans and other relevant

qualitative objectives such as corporate governance, investor relations,

succession planning and human capital development.

The Group undertakes a rigorous and detailed annual planning and budgeting

process. The Remuneration Committee in considering the short term

performance of Group directors and executives considers the most relevant

short term performance conditions are achieving or exceeding annual

budgets, business plans and relevant qualitative objectives. Since listing, the

management team has met or exceeded its annual targets and as a result,

the Board has not had to consider other factors that may have been relevant

in determining whether an executive would still be entitled to a proportion of

their annual cash bonus.

Equity options (long term incentive) The options under the Executive Share Option Plan (ESOP) were issued to

executives and management as part of the listing of the company. They form

part of the Group’s long term incentive program, however their vesting is not

subject to performance conditions. No options have been issued subsequent

to June 2004 to Group directors and executives under this program.

Equity options (long term incentive)

with performance conditions

Since July 2004, all options issued to Group directors and executives under

the Group’s long term incentive program have included a performance

hurdle requiring compound annual earnings per share (EPS) growth.

The Remuneration Committee considers this equity performance linked

remuneration structure is effective in aligning the long term interests of

executives and shareholders.

It is anticipated that all long term incentives issued to Group directors and

executives in subsequent fi nancial periods will continue to be subject to

appropriate performance conditions that ensure an alignment of the long term

interests of management and shareholders.

All executive offi cers are employed under standard company employment agreements. None of these agreements

provide for onerous termination conditions or payments with respect to the company or executive.

Further details of the company’s remuneration policy are contained in the Corporate Governance statement

contained in the Annual Report. The directors consider the policy appropriate given the Measures of Performance

and Shareholder Value as detailed in the Review of Operations.

Key management personnel compensation (audited)

Key management personnel include the directors and the fi ve identifi ed company and Group executives.

The aggregate compensation of the key management personnel of the company and the Group is set out below:

Consolidated Company

2007

$

2006

$

2007

$

2006

$

Short term employee benefi ts 4,252,117 3,217,930 359,700 359,700

Post-employment benefi ts 228,485 223,726 - -

Share-based payments 567,550 507,766 - -

5,048,152 3,949,422 359,700 359,700


20

The compensation of each member of the key management personnel of the Group is set out below:

Short-term employeebenefi ts

Post-employment benefi ts

Share-basedpayments

2007

Salary & fees

$

Bonus

$

Non-

monetary

$

Other

$

Superan-

nuation

$

Other

$

Options

$

Total

$

Consisting of

options

%

Non executive

directors

J. King 120,000 - - - 10,800 - - 130,800 -

P. Elliott 70,000 - - - 6,300 - - 76,300 -

G. Levin 70,000 - - - 6,300 - - 76,300 -

W. Fraser 70,000 - - - 6,300 - - 76,300 -

330,000 - - - 29,700 - - 359,700

Executive

offi cers

R. Uechtritz 756,757 875,000 - 35,000 83,243 8,230 177,717(i) 1,935,947 9.2

T. Smart 396,000 420,000 - 26,000 43,560 - 135,104(i) 1,020,664 13.2

F. Garonzi 222,360 210,000 - 25,000 20,012 - 78,914(ii) 556,286 14.2

R. Murray 240,000 210,000 - 25,000 21,600 - 85,766(iii) 582,366 14.7

S. Browning 246,000 210,000 25,000 - 22,140 - 90,049(iv) 593,189 15.2

1,861,117 1,925,000 25,000 111,000 190,555 8,230 567,550 4,688,452

2,191,117 1,925,000 25,000 111,000 220,255 8,230 567,550 5,048,152

(i) Series #6, 10, 17, 24 and 25(ii) Series #1, 10, 14, 21 and 22(iii) Series #5, 9, 10, 14, 21 and 22 (iv) Series #8, 10, 14, 21 and 22

Short-term employeebenefi ts

Post-employment benefi ts

Share-basedpayments

2006

Salary & fees

$

Bonus

$

Non-

monetary

$

Other

$

Superan-

nuation

$

Other

$

Options

$

Total

$

Consisting of

options

%

Non executive directors

J. King 86,667 - - - 7,800 - - 94,467 -

P. Elliott 103,333 - - - 9,300 - - 112,633 -

G. Levin 70,000 - - - 6,300 - - 76,300 -

W. Fraser 70,000 - - - 6,300 - - 76,300 -

330,000 - - - 29,700 - - 359,700 -

Executive offi cers

R. Uechtritz 630,631 587,000 - 35,000 69,369 8,230 157,950(i) 1,488,180 10.6

T. Smart 330,000 309,000 - 26,000 36,300 - 115,173(i) 816,473 14.1

F. Garonzi 185,300 100,000 - 25,000 25,677 - 68,210(ii) 404,187 16.9

R. Murray 200,000 115,000 - - 27,000 - 79,480(iii) 421,480 18.9

S. Browning 205,000 115,000 25,000 - 27,450 - 86,952(iv) 459,402 18.9

1,550,931 1,226,000 25,000 86,000 185,796 8,230 507,765 3,589,722

1,880,931 1,226,000 25,000 86,000 215,496 8,230 507,765 3,949,422

(i) Series #6, 10 and 17 (ii) Series #1, 10, and 14 (iii) Series #5, 9, 10 and 14(iv) Series #8, 10 and 14



21

Share options (audited)

Executive and employee share option plan

The Group has an ownership-based remuneration scheme for employees and executives (including non-executive

directors). In accordance with the provisions of the scheme, employees and executives within the Group are granted

options to purchase parcels of ordinary shares at various issue prices. The options vest a third each, on the second,

third and fourth anniversary of issue providing that performance conditions, where they exit, are met. The options

expire within fi ve years of their issue, or one month after the executive’s resignation, whichever is earlier.

Shares under option

Details of interests under option at the date of this report are:

Option series

Number of shares under

optionClass of

share Grant dateGrant date share price Expiry date

Exercise price

$Expected volatility

Dividend yield

Risk-free interest rate

Fair value at grant date

$

5 47,999 Ordinary 18/09/03 N/A 18/09/08 1.25 53.0% 5.0% 5.31% 0.56

6 195,000 Ordinary 18/09/03 N/A 18/09/08 1.45 53.0% 5.0% 5.31% 0.51

7 17,212 Ordinary 29/01/04 2.33 29/01/09 2.32 24.0% 3.3% 5.04% 0.45

8 100,000 Ordinary 21/03/04 2.20 21/03/09 2.23 24.0% 3.3% 5.17% 0.45

9 134,000 Ordinary 28/04/04 2.22 28/04/09 2.25 24.0% 3.3% 5.65% 0.48

10 1,249,606 Ordinary 23/07/04 2.57 23/07/09 2.29 24.3% 2.8% 5.54% 0.48

11 33,334 Ordinary 27/10/04 3.47 27/10/09 2.29 23.5% 2.1% 5.20% 0.48

12 33,334 Ordinary 28/01/05 3.70 28/01/10 3.68 25.0% 1.9% 5.34% 0.97

13 50,000 Ordinary 12/04/05 3.52 12/04/10 3.61 26.3% 2.0% 5.54% 0.92

14 513,528 Ordinary 22/07/05 3.38 22/07/10 3.33 28.4% 2.1% 5.29% 0.81

15 50,000 Ordinary 08/08/05 3.44 08/08/10 3.37 28.3% 2.1% 5.34% 0.83

16 50,000 Ordinary 26/09/05 3.39 26/09/10 3.29 28.3% 2.1% 5.25% 0.83

17 203,136 Ordinary 22/07/05 3.38 22/07/10 3.33 28.4% 2.1% 5.29% 0.81

18 50,000 Ordinary 03/04/06 4.94 03/04/11 4.89 28.3% 1.5% 5.37% 1.25

19 50,000 Ordinary 26/06/06 4.85 26/06/11 4.98 29.4% 1.5% 5.85% 1.21

20 285,000 Ordinary 15/08/06 4.79 15/08/11 4.81 29.5% 1.6% 5.98% 1.24

21 168,000 Ordinary 15/08/06 4.79 15/08/11 4.81 29.5% 1.6% 5.98% 1.24

22 72,000 Ordinary 15/08/06 4.79 15/08/11 4.81 29.5% 1.6% 5.98% 1.24

23 60,000 Ordinary 13/09/06 4.81 13/09/11 4.81 29.4% 1.6% 5.74% 1.24

24 245,000 Ordinary 15/08/06 4.79 15/08/11 4.81 29.5% 1.6% 5.98% 1.24

25 105,000 Ordinary 15/08/06 4.79 15/08/11 4.81 29.5% 1.6% 5.98% 1.24

26 30,000 Ordinary 29/11/06 5.82 29/11/11 5.73 29.2% 1.4% 5.75% 1.56

27 50,000 Ordinary 28/12/06 6.55 28/12/11 6.48 29.3% 1.2% 6.04% 1.79

28 50,000 Ordinary 19/04/07 8.05 19/04/12 8.01 29.4% 1.1% 6.11% 2.21

29 30,000 Ordinary 07/05/07 8.75 07/05/12 8.47 29.4% 1.0% 6.01% 2.51

30 90,000 Ordinary 04/07/07 11.36 04/07/12 10.90 29.8% 1.1% 6.32% 3.37

31 30,000 Ordinary 01/08/07 11.20 01/08/12 11.25 30.0% 1.1% 6.16% 3.10

3,992,149

The holders of these options do not have the right, by virtue of the option, to participate in any share issue or interest

issue of any other body corporate or registered scheme. The weighted average fair value of the share options granted

during the fi nancial year is $1.35 (2006: $0.86). Options were valued using the Black-Scholes model.


22

Volatility is based on:

Options Granted before ASX listing on 23 October 2003:

• AASB 1046 outlined that where the underlying stock is not publicly traded, “the expected average volatility in the

entity’s industry” may be used to determine the price volatility. A search identifi ed Australian listed companies that

operated in a similar industry to JB Hi-Fi. After appropriate analysis, Harvey Norman Holding Ltd and Brazin Ltd

were considered comparable for the purchase of determining price volatility during the period prior to JB Hi-Fi

listing on the ASX. This volatility methodology has been applied to Series 1 to 6.

Options Granted after ASX listing on 23 October 2003:

• Series 7 to 9 expected volatility was based on the daily closing share price since listing, which was a period of

less than 12 months;

• Series 10 to 13, expected volatility is based on the daily closing share price for the 12 months preceding the

issues of the series;

• Series 14 to 29, expected volatility is based on the daily closing share price since listing; and

• Series 30 and onwards, expected volatility is based on the daily closing share price for the 3.44 years preceding

the issues of the series.

All option series have an expiry of fi ve years from grant date. However, from Series 14, expected life was reduced to

3.44 years to allow for the effects of early exercise based on prior years experience.

The following share options granted under the employee and executive share option plan were exercised during the

fi nancial year. All shares were issued by JB Hi-Fi Limited.

2007

Option Series Grant Date Exercise date

Number exercised

Number of shares issued

Class ofshares

Amount paid per share

Amount unpaid on shares

Share price at exercise date $

1 07/02/2002 23/10/2006 86,667 86,667 Ordinary 0.50 - 5.60

2 19/09/2002 23/10/2006 26,667 26,667 Ordinary 1.25 - 5.60

3 22/10/2002 13/02/2007 26,666 26,666 Ordinary 1.25 - 6.69

4 22/10/2002 23/10/2006 26,666 26,666 Ordinary 1.25 - 5.60

5 18/09/2003 16/08/2006 5,334 5,334 Ordinary 1.25 - 4.75

5 18/09/2003 23/10/2006 32,000 32,000 Ordinary 1.25 - 5.60

5 18/09/2003 13/02/2007 5,333 5,333 Ordinary 1.25 - 6.63

6 18/09/2003 19/02/2007 80,000 80,000 Ordinary 1.45 - 7.62

6 18/09/2003 23/02/2007 115,000 115,000 Ordinary 1.45 - 7.79

7 29/01/2004 23/10/2006 8,606 8,606 Ordinary 2.32 - 5.60

8 23/03/2004 16/08/2006 50,000 50,000 Ordinary 2.23 - 4.68

9 28/04/2004 16/08/2006 41,999 41,999 Ordinary 2.25 - 4.68

9 28/04/2004 23/10/2006 25,001 25,001 Ordinary 2.25 - 5.60

10 23/07/2004 16/08/2006 289,876 289,876 Ordinary 2.29 - 4.68

10 23/07/2004 23/10/2006 17,335 17,335 Ordinary 2.29 - 5.60

10 23/07/2004 19/02/2007 114,345 114,345 Ordinary 2.29 - 7.62

10 23/07/2004 23/02/2007 173,251 173,251 Ordinary 2.29 - 7.79

10 23/07/2004 05/03/2007 5,000 5,000 Ordinary 2.29 - 7.45

11 27/10/2004 05/03/2007 16,666 16,666 Ordinary 2.29 - 7.45

12 28/01/2006 13/02/2007 16,666 16,666 Ordinary 3.68 - 7.10

1,163,078 1,163,078



23

2006

Option Series Grant Date Exercise date

Number exercised

Number of shares issued

Class ofshares

Amount paid per share

Amount unpaid on shares

Share price at exercise date $

1 07/02/2002 29/8/2005 20,000 20,000 Ordinary 0.50 - 3.37

1 07/02/2002 31/10/2005 667 667 Ordinary 0.50 - 3.37

1 07/02/2002 15/02/2006 266,664 266,664 Ordinary 0.50 - 4.35

2 19/09/2002 31/10/2005 26,667 26,667 Ordinary 1.25 - 3.37

3 22/10/2002 22/02/2006 26,667 26,667 Ordinary 1.25 - 4.50

4 22/10/2002 22/02/2006 53,334 53,334 Ordinary 1.25 - 4.50

5 18/09/2003 31/10/2005 21,334 21,334 Ordinary 1.25 - 3.37

5 18/09/2003 22/02/2006 16,000 16,000 Ordinary 1.25 - 4.50

6 18/09/2003 31/10/2005 80,000 80,000 Ordinary 1.45 - 3.37

6 18/09/2003 22/02/2006 115,000 115,000 Ordinary 1.45 - 4.50

626,633 626,633

Long Term Incentive 2007 (audited)

Since July 2004, certain Group directors and executives have been issued with options under the ESOP as part of

the Company’s long term incentive program. Vesting of the options issued is subject to a performance hurdle which

requires compound annual earnings per share growth of between 10% and 15% per annum. If the performance

hurdle is achieved, a third of the options will vest on each of the second, third and fourth anniversary of issue.

The following table details the current options outstanding which feature performance hurdles:

Option Series Grant Date

Performance Condition -

Cumulative EPS Growth per annum

Date for testing Performance

ConditionRelevant

Financial Year

Vested Subject to Performance

Condition

Vested due toachievement of

Performance Condition

10.1 23/07/2004 10.0% 23/07/2006 2006 Yes Yes

10.2 23/07/2004 10.0% 23/07/2007 2007 Yes Yes

10.3 23/07/2004 10.0% 23/07/2008 2008 No No

14.1 22/07/2005 10.0% 22/07/2007 2007 Yes Yes

14.2 22/07/2005 10.0% 22/07/2008 2008 No No

14.3 22/07/2005 10.0% 22/07/2009 2009 No No

17.1 22/07/2005 10.0% 22/07/2007 2007 Yes Yes

17.2 22/07/2005 10.0% 22/07/2008 2008 No No

17.3 22/07/2005 10.0% 22/07/2009 2009 No No

21.1 15/08/2006 10.0% 15/08/2008 2008 No No

21.2 15/08/2006 10.0% 15/08/2009 2009 No No

21.3 15/08/2006 10.0% 15/08/2010 2010 No No

22.1 15/08/2006 15.0% 15/08/2008 2008 No No

22.2 15/08/2006 15.0% 15/08/2009 2009 No No

22.3 15/08/2006 15.0% 15/08/2010 2010 No No

24.1 15/08/2006 10.0% 15/08/2008 2008 No No

24.2 15/08/2006 10.0% 15/08/2009 2009 No No

24.3 15/08/2006 10.0% 15/08/2010 2010 No No

25.1 15/08/2006 15.0% 15/08/2008 2008 No No

25.2 15/08/2006 15.0% 15/08/2009 2009 No No

25.3 15/08/2006 15.0% 15/08/2010 2010 No No


24


Director and executive equity holdings (audited)

Fully paid ordinary shares of JB Hi-Fi Limited

2007

Balance at

1 July 2006

No.

Granted as

compensation

No.

Received on

exercise of

options

No.

Net other change

No.

Balance at

30 June 2007

No.

Balance held

nominally

No.

J. King 32,258 - - - 32,258 32,258

P. Elliott 498,600 - - (150,000) 348,600 110,000

G. Levin 300,000 - - (200,000) 100,000 -

W. Fraser 6,451 - - - 6,451 6,451

R. Uechtritz 4,000,000 - 288,251 (288,251) 4,000,000 -

T. Smart 2,080,000 - 194,345 (430,000) 1,844,345 -

F. Garonzi 240,000 - 86,625 - 326,625 160,000

R. Murray 21,334 - 119,958 (21,333) 119,959 -

S. Browning - - 136,625 - 136,625 -

7,178,643 - 825,804 (1,089,584) 6,914,863 308,709

2006

Balance at

1 July 2005

No.

Granted as

compensation

No.

Received on

exercise of

options

No.

Net other change

No.

Balance at

30 June 2006

No.

Balance held

nominally

No.

J. King 32,258 - - - 32,258 32,258

P. Elliott 438,600 - - 60,000 498,600 260,000

G. Levin 400,000 - - (100,000) 300,000 -

W. Fraser 6,451 - - - 6,451 6,451

R. Uechtritz 5,107,096 - 115,000 (1,222,096) 4,000,000 -

T. Smart 2,000,000 - 80,000 - 2,080,000 -

F. Garonzi 304,516 - - (64,516) 240,000 160,000

R. Murray 3,225 - 21,334 (3,225) 21,334 -

S. Browning - - - - - -

8,292,146 - 216,334 (1,329,837) 7,178,643 458,709

Share options of JB Hi-Fi Limited

2007

Balance at

1 July 2006

No.

Granted as

compensation

No.

Exercised

No.

Balance at

30 June 2007

No.

Balance vested

at 30 June 2007

No.

Vested and

exercisable

No.

Options vested

during year

No.

R. Uechtritz (i) 851,319 200,000 (288,251) 763,068 - - 288,251

T. Smart(i) 604,603 150,000 (194,345) 560,258 - - 194,345

F. Garonzi(i) 336,051 80,000 (86,625) 329,426 - - 86,625

R. Murray(i) 414,717 80,000 (119,958) 374,759 12,000 12,000 119,958

S. Browning(i) 486,051 80,000 (136,625) 429,426 50,000 50,000 136,625

2,692,741 590,000 (825,804) 2,456,937 62,000 62,000 825,804

(i) Excludes any options that may be approved by the Board in August 2007. The issue of any options to R. Uechtritz and T.Smart, both group executive

directors of the company, is also subject to shareholder approval at the company’s Annual General Meeting in October 2007.


25

2006

Balance at1 July 2005

No.

Granted as compensation

No.Exercised

No.

Balance at30 June 2006

No.

Balance vestedat 30 June 2006

No.

Vested and exercisable

No.

Options vested during year

No.

R. Uechtritz 864,751 101,568 (115,000) 851,319 - - 115,000

T. Smart 583,035 101,568 (80,000) 604,603 - - 80,000

F. Garonzi 259,875 76,176 - 336,051 - - -

R. Murray 359,875 76,176 (21,334) 414,717 - - 21,334

S. Browning 409,875 76,176 - 486,051 50,000 50,000 50,000

2,477,411 431,664 (216,334) 2,692,741 50,000 50,000 266,334

All employee and executive share options issued to employees and executives during the fi nancial year were made in

accordance with the provisions of the employee and executive share option plan.

During the fi nancial year 825,804 (2006: 216,334) options were exercised by key management personnel at a

weighted average exercise price of $2.06 for 825,804 (2006: 216,334) ordinary shares in JB Hi-Fi Limited

(2006: $1.43). No amounts remain unpaid on the options exercised during the fi nancial year at year end.

Value of options issued to directors and executives (audited)

The following table summarises the value of options granted, exercised or lapsed during the annual reporting period

to the identifi ed directors and executives:

Value of options grantedat the grant date (i)

$

Value of options exercisedat the exercise date (ii)

$

Value of optionslapsed at the date of lapse

$Total

$

R. Uechtritz 962,000 1,681,981 - 2,643,981

T. Smart 721,500 1,099,859 - 1,821,359

F. Garonzi 384,800 213,098 - 597,898

R. Murray 384,800 335,896 - 720,696

S. Browning 384,800 122,500 - 507,300

2,837,900 3,453,334 - 6,291,234

(i) The value of options granted during the period is recognised in compensation over the vesting period of the grant, in accordance with Australian

accounting standards.

(ii) Only options granted in previous years were exercised during the current fi nancial year.

Value of options - basis of calculation

Options exercised during the year were granted between 18 September 2003 and 23 August 2004.

The total value of options granted, exercised and lapsed is calculated based on the following:

• Fair value of the option at grant date multiplied by the number of options granted during the year; plus

• Fair value of the option at the time it is exercised multiplied by the number of options exercised during the year;

plus

• Fair value of the option at the time of lapse multiplied by the number of options lapsed during the year.

The total value of options included in remuneration for the year is calculated in accordance with Australian Accounting

Standards. This requires that the value of the option is determined at grant date, and is included in remuneration on a

proportionate basis from grant date to vesting date. Where the options immediately vest, the full value of the option is

recognised in remuneration in the current year.


26

Proceedings on behalf of the company

The directors are not aware of any persons applying for leave under s.237 of the Corporations Act 2001 to bring, or

intervene in, proceeding on behalf of the company.

Non-audit services

For a company of the size and complexity of JB Hi-Fi, it is often in the interests of the company to engage the

services of its external auditor to assist in a range of related projects. The directors are aware of the issues relating to

auditor independence and have in place policies and procedures to address actual, potential and perceived confl icts

in relation to the provision of non-audit related services by its external auditor.

The directors are satisfi ed that the provision of non-audit services, during the year, by the auditor (or by another

person or fi rm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed

by the Corporations Act 2001.

The directors are of the opinion that the services as disclosed in note 10 to the fi nancial statements do not

compromise the external auditor’s independence, based on advice received from the Audit Committee, for the

following reasons:

• all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and

objectivity of the auditor, and

• none of the services undermine the general principles relating to auditor independence as set out in Code of

Conduct APES 110 Code of Ethics for Professional Accountants issued by the Australian Professional & Ethnical

Standards Board, Including reviewing or auditing the auditor’s own work, acting In a management or decision-

making capacity for the company, acting as advocate for the company or jointly sharing economic risks and

rewards.

Details of amounts paid or payable to the auditor for non-audit services provided during the year by the auditor are

outlined in note 10 to the fi nancial statements.

Auditor’s independence declaration

The auditor’s independence declaration is included on page 27, of the annual report.

Rounding off of amounts

The company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in

accordance with that Class Order amounts in the fi nancial report are rounded off to the nearest thousand dollars.

Amounts in the directors’ report have been rounded off to the nearest whole dollar, unless otherwise indicated.

Signed in accordance with a resolution of the directors made pursuant to s.298(2) of the Corporations Act 2001.

On behalf of the Directors

James King Richard Uechtritz

Chairman Chief Executive Offi cer

Melbourne,

14 August 2007



27

Deloitte Touche Tohmatsu

A.B.N. 74 490 121 060

180 Lonsdale Street

Melbourne VIC 3000

GPO Box 78B

Melbourne VIC 3001 Australia

DX 111

Tel: +61 (0) 3 9208 7000

Fax: +61 (0) 3 9208 7001

www.deloitte.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

Member of


The Board of Directors

JB Hi-Fi Limited

14 Spink Street

BRIGHTON VIC 3186

14 August 2007

Dear Board Members

JB Hi-Fi Limited

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of

independence to the directors of JB Hi-Fi Limited.

As lead audit partner for the audit of the fi nancial statements of JB Hi-Fi Limited for the year ended 30 June 2007,

I declare that to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

DELOITTE TOUCHE TOHMATSU

B Porter

Partner

Chartered Accountants

AUDITOR’S INDEPENDENCE DECLARATION


28


A.B.N. 74 490 121 060

180 Lonsdale Street

Melbourne VIC 3000

GPO Box 78B

Melbourne VIC 3001 Australia

DX 111

Tel: +61 (0) 3 9208 7000

Fax: +61 (0) 3 9208 7001

www.deloitte.com.au

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF JB HI FI LIMITED

Report on the Financial Report and AASB 124 Compensation Disclosures in the Directors’ Report

We have audited the accompanying fi nancial report of JB Hi Fi Limited (the company), which comprises the balance

sheet as at 30 June 2007, and the income statement, cash fl ow statement and statement of changes in equity for

the year ended on that date, a summary of signifi cant accounting policies, other explanatory notes and the directors’

declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from

time to time during the fi nancial year as set out on pages 30 to 66.

We have also audited the compensation disclosures contained in the directors’ report. As permitted by the

Corporations Regulations 2001, the company has disclosed information about the compensation of key management

personnel (“compensation disclosures”) as required by paragraphs Aus 25.4 to Aus 25.7.2 of Accounting Standard

AASB 124 Related Party Disclosures (“AASB 124”), under the heading “remuneration report” on pages 18 to 25 of

the directors’ report, and not in the fi nancial report. These compensation disclosures are identifi ed in the directors’

report as being subject to audit.

Directors’ Responsibility for the Financial Report and the AASB 124 Compensation Disclosures Contained in the

Directors’ Report

The directors of the company are responsible for the preparation and fair presentation of the fi nancial report in

accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the

Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the

preparation and fair presentation of the fi nancial report that is free from material misstatement, whether due to

fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are

reasonable in the circumstances. The directors are also responsible for the compensation disclosures contained

in the directors’ report. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101

Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial

Reporting Standards ensures that the consolidated fi nancial statements and notes complies with International

Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the fi nancial report and compensation disclosures contained in the

directors’ report based on our audit. We conducted our audit in accordance with Australian Auditing Standards.

These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements

and plan and perform the audit to obtain reasonable assurance whether the fi nancial report is free from material

misstatement and the compensation disclosures comply with AASB 124.

INDEPENDENT AUDITOR REPORT

Liability limited by a scheme approved under Professional Standards Legislation.

Member of



29

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial

report and the compensation disclosures contained in the directors’ report. The procedures selected depend on

the auditor’s judgement, including the assessment of the risks of material misstatement of the fi nancial report and

the compensation disclosures contained in the directors’ report, whether due to fraud or error. In making those

risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation

of the fi nancial report and the compensation disclosures contained in the directors’ report in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting

policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall

presentation of the fi nancial report and the compensation disclosures contained in the directors’ report.

We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit

opinions.

Auditor’s Independence Declaration

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s Opinion on the Financial Report

In our opinion:

(a) the fi nancial report of JB Hi Fi Limited is in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the company’s and consolidated entity’s fi nancial position as at 30 June 2007

and of their performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the

Corporations Regulations 2001; and

(b) the consolidated fi nancial statements and notes also comply with International Financial Reporting Standards as

disclosed in Note 2.

Auditor’s Opinion on the AASB 124 Compensation Disclosures Contained in the Directors’ Report

In our opinion, the compensation disclosures that are contained on pages 18 to 25 under the heading “remuneration

report” of the directors’ report and identifi ed as being subject to audit, comply with paragraphs Aus 25.4 to Aus

25.7.2 of Accounting Standard AASB 124 Related Party Disclosures.

DELOITTE TOUCHE TOHMATSU

B Porter

Partner

Chartered Accountants

Melbourne,

14 August 2007


30

The directors declare that:

(a) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts

as and when they become due and payable;

(b) in the directors’ opinion, the attached fi nancial statements and notes thereto are in accordance with the

Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the

fi nancial position and performance of the company and the Group; and

(c) the directors have been given the declarations required by s.295A of the Corporations Act 2001.

At the date of this declaration, the company is within the class of companies affected by ASIC Class Order 98/1418.

The nature of the deed of cross guarantee is such that each company which is party to the deed guarantees to each

creditor payment in full of any debt in accordance with the deed of cross guarantee.

In the directors’ opinion, there are reasonable grounds to believe that the company and the companies to which the

ASIC Class Order applies, as detailed in note 29 to the fi nancial statements will, as a Group, be able to meet any

obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee.

Signed in accordance with a resolution of the directors made pursuant to s.295(5) of the Corporations Act 2001.

On behalf of the Directors

James King Richard Uechtritz

Chairman Chief Executive Offi cer

Melbourne,

14 August 2007

DIRECTORS’ DECLARATION


31

INCOME STATEMENT

for the fi nancial year ended 30 June 2007


Note

2007

$’000

2006

$’000

2007

$’000

2006

$’000

Revenue 4 1,281,837 945,821 – –

Cost of sales 6 (998,478) (733,395) – –

Gross profi t 283,359 212,426 – –

Other income 4 1,933 1,550 10,033 10,474

Share of profi ts of associates accounted for using

the equity method 14 - 170 – –

Sales and marketing expenses (142,020) (113,921) (936) (743)

Occupancy expenses (46,815) (33,181) – –

Administration expenses (15,699) (12,231) (360) (340)

Finance costs (7,457) (6,410) – (1,297)

Other expenses (13,922) (9,603) – –

Profi t before tax 6 59,379 38,800 8,737 8,094

Income tax expense 7 (18,003) (11,954) (86) (407)

Profi t for the year 41,376 26,846 8,651 7,687

Profi t attributable to minority interest (987) (1,033) – –

Profi t attributable to members of the

parent entity 40,389 25,813 8,651 7,687

Earnings per share

Basic (cents per share) 26 38.78 25.03

Diluted (cents per share) 26 38.08 24.53

Consolidated

KEY STATISTICAL DATA 2007 2006

Gross margin percentage (%) 22.11% 22.46%

Rent for trading stores as a percentage of sales (%)(i) 2.01% 1.98%

Cost of doing business as a percentage of sales (%) 16.05% 17.07%

EBIT margin (%) 5.11% 4.71%

Number of stores at end of the period 89 66

(i) Based on actual rent and outgoings for the fi nancial year, excluding the impact of A-IFRS straight-line rent adjustment. If this adjustment had

been included, rent as a percentage of sales would be 2.07% (2006: 2.05%).

Notes to the fi nancial statements are included on pages 35 to 66.

916CR14770_JBHIFI_Annual_Report - 4 - Financials.indd 31916CR14770_JBHIFI_Annual_Report - 4 - Financials.indd 31 19/09/2007 3:50:10 PM19/09/2007 3:50:10 PM

32

BALANCE SHEET

as at 30 June 2007


Note

2007

$’000

2006

$’000

2007

$’000

2006

$’000

Current assets

Cash and cash equivalents 34 23,707 4,493 – 1

Trade and other receivables 11 45,177 28,282 – 100

Inventories 12 211,311 161,137 – –

Other 13 3,549 2,845 – –

Total current assets 283,744 196,757 – 101

Non-current assets

Investments accounted for using the equity method 14 689 689 450 450

Other fi nancial assets 15 847 674 44,423 39,137

Plant and equipment 16 80,858 57,206 – –

Deferred tax assets 7 7,094 4,867 – –

Goodwill 17 34,110 20,015 – –

Intangible assets 18 46,636 46,636 – –

Total non-current assets 170,234 130,087 44,873 39,587

Total assets 453,978 326,844 44,873 39,688

Current liabilities

Trade and other payables 19 185,288 122,762 10 8

Borrowings 20 702 519 – –

Current tax liabilities 7 7,576 4,453 7,196 4,449

Provisions 21 15,166 9,508 – –

Other 22 1,244 1,102 – –

Total current liabilities 209,976 138,344 7,206 4,457

Non-current liabilities

Borrowings 20 117,732 100,042 – –

Provisions 21 682 771 – –

Other 22 6,786 4,030 – –

Total non-current liabilities 125,200 104,843 – –

Total liabilities 335,176 243,187 7,206 4,457

Net assets 118,802 83,657 37,667 35,231

Equity

Issued capital 23 35,883 33,036 35,883 33,036

Reserves 24 2,344 2,036 1,711 1,387

Retained earnings 25 74,883 43,880 73 808

Equity attributable to equity holders of the parent 113,110 78,952 37,667 35,231

Minority interest 5,692 4,705 – –

Total equity 118,802 83,657 37,667 35,231



33


Note

2007

$’000

2006

$’000

2007

$’000

2006

$’000

(a) Retained earnings 25

Retained earnings at the beginning of the year 43,880 25,494 808 549

Net profi t attributable to members of the parent

entity

40,389 25,813 8,651 7,687

Dividends (9,386) (7,428) (9,386) (7,428)

Retained earnings at the end of the year 74,883 43,880 73 808

(b) Reserves 24

Reserves at the beginning of the year 2,036 644 1,387 644

Movements in reserves:

Hedge:

- interest rate swap (107) 649 – –

- net investment (233) – – –

Equity-settled benefi ts 324 743 324 743

Foreign currency translation 324 – – –

Reserves at the end of the year 2,344 2,036 1,711 1,387

(c) Issued capital 23

Issued capital at the beginning of the year 33,036 32,428 33,036 32,428

Issue of shares under share option plan 2,847 608 2,847 608

Share capital at the end of the year 35,883 33,036 35,883 33,036

(d) Total recognised income and expenses for the

year

Net profi t for the year 41,376 26,846 8,650 7,687

Profi t attributable to minority interest (987) (1,033) – –

Net profi t attributable to members of the parent

entity

40,389 25,813 8,650 7,687

Net income/(expense) recognised directly in equity:

- interest rate swap (107) 649 – –

- net investment (233) – – –

- foreign currency translation 324 – – –

Total recognised income and

expenses for the year 40,373 26,462 8,650 7,687

STATEMENT OF CHANGES IN EQUITY




34

CASH FLOW STATEMENT


Consolidated Company*

Note

2007

$’000

2006

$’000

2007

$’000

2006

$’000

Cash fl ows from operating activities

Receipts from customers 1,397,827 1,038,663 – –

Payments to suppliers and employees (1,311,465) (1,006,089) – –

Dividend received – 118 9,386 7,718

Interest and bill discounts received 1,289 672 635 2,756

Interest and other costs of fi nance paid (8,393) (6,410) – (527)

Income taxes paid (15,229) (11,333) (14,221) (9,887)

Net cash provided by/(used in) operating activities 34(d) 64,029 15,621 (4,200) 60

Cash fl ows from investing activities

Proceeds from repayment of related party loans – – 11,350 63,704

Payments for plant and equipment (34,406) (29,046) – –

Proceeds from sale of plant and equipment 180 200 – –

Payment for businesses 34(b) (19,231) – – –

Net cash (used in)/provided by investing activities (53,457) (28,846) 11,350 63,704

Cash fl ows from fi nancing activities

Borrowing activities:

Repayment of lease liabilities – (20,117) – –

Proceeds/(repayments) from borrowings 15,793 43,024 – (57,000)

Equity activities:

Proceeds from issue of equity securities 2,235 608 2,235 608

Dividends paid to members of the parent entity (9,386) (7,428) (9,386) (7,428)

Net cash provided by/(used in) fi nancing activities 8,642 16,087 (7,151) (63,820)

Net increase/(decrease) in cash and cash equivalents 19,214 2,862 (1) (56)

Cash and cash equivalents at the beginning

of the fi nancial year 4,493 1,631 1 57

Cash and cash equivalents at the end

of the fi nancial year 34(a) 23,707 4,493 – 1

* All cash movements are conducted through the JB Hi-Fi Group Pty Ltd bank account and are included here for disclosure purposes only.



35

1. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the

Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current

annual reporting period. The adoption of these new and revised Standards and Interpretations did not have any

material fi nancial impact on the fi nancial statements of the Company or the Group.

At the date of authorisation of the fi nancial report, the following relevant Standards and Interpretations were in issue

but not yet effective:

● AASB 7 ‘Financial Instruments: Disclosures’ and

consequential amendments to other accounting

standards resulting from its issue

Effective for annual reporting periods beginning on or after

1 January 2007

● AASB 101 ‘Presentation of Financial Statements’

- revised standard


1 January 2007

● Interpretation 10 ‘Interim Financial Reporting and

Impairment’


1 November 2006

● AASB 8 ‘Operating Segments’ Effective for annual reporting periods beginning on or after

1 January 2009

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no

material fi nancial impact on the fi nancial statements of the company or the Group. The circumstances addressed by

Interpretation 10, which prohibits the reversal of certain impairment losses, do not affect either the company’s or the

Group’s previously reported results and accordingly, there will be no impact to these fi nancial statements on adoption

of the Interpretation.

The application of AASB 101 (revised), AASB 7 and AASB 2005-10 will not affect any of the amounts recognised

in the fi nancial statements, but will change the disclosures presently made in relation to the company’s and the

Group’s fi nancial instruments and the objectives, policies and processes for managing capital. These Standards

and Interpretations will be fi rst applied in the fi nancial report of the Group that relates to the annual reporting period

beginning after the effective date of each pronouncement, which will be the company’s annual reporting period

beginning on 1 July 2007.

2. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

The fi nancial report is a general purpose fi nancial report which has been prepared in accordance with the

Corporations Act 2001, Accounting Standards and Interpretations, and complies with other requirements of the

law. The fi nancial report includes the separate fi nancial statements of the company and the consolidated fi nancial

statement of the Group.

Accounting Standards include Australian equivalents to International Financial Reporting Standards (‘A-IFRS’).

Compliance with A-IFRS ensures that the fi nancial statements and notes of the company and the Group comply with

International Financial Reporting Standards (‘IFRS’). The parent entity fi nancial statements and notes also comply

with IFRS except for the disclosure requirements in IAS 32 ‘Financial Instruments: Disclosure and Presentation’ as the

Australian equivalent Accounting Standard, AASB 132 ‘Financial Instruments: Disclosure and Presentation’ does not

require such disclosures to be presented by the parent entity where its separate fi nancial statements are presented

together with the consolidated fi nancial statements of the Group.

The fi nancial statements were authorised for issue by the directors on 14 August 2007.

NOTES TO THE FINANCIAL STATEMENTS



36

NOTES TO THE FINANCIAL STATEMENTS (continued)


Basis of preparation

The fi nancial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current

assets and fi nancial instruments. Cost is based on the fair values of the consideration given in exchange for assets.

All amounts are presented in Australian dollars, unless otherwise noted.

The company is a company of the kind referred to in ASIC Class Order 98/0100, dated 10 July 1998, and in

accordance with that class order amounts in the fi nancial report are rounded off to the nearest thousand dollars,

unless otherwise indicated.

The following signifi cant accounting policies have been adopted in the preparation and presentation of the

fi nancial report:

(a) Basis of consolidation

The consolidated fi nancial statements incorporate the fi nancial statements of the company and entities controlled by

the company (its subsidiaries) (referred to as ‘the Group’ in these fi nancial statements). Control is achieved where the

company has the power to govern the fi nancial and operating policies of an entity so as to obtain benefi ts from its

activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement

from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the fi nancial statements of subsidiaries to bring their accounting policies

into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. Minority interests

in the net assets (excluding goodwill) of consolidated subsidiaries are identifi ed separately from the Group’s equity

therein. Minority interests consist of the amount of those interests at the date of the original business combination

and the minority’s share of changes in equity since the date of the combination.

(b) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are

assets that necessarily take a substantial period of time to get ready for their Intended use or sale, are added to the

cost of those assets, until such time as the assets are substantially ready for their Intended use or sale.

All other borrowing costs are recognised in profi t or loss in the period in which they are incurred.

(c) Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of the business

combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities

incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any

costs directly attributable to the business combination. The acquiree’s identifi able assets, liabilities and contingent

liabilities that meet the conditions for recognition under AASB 3 ‘Business Combinations’ are recognised at their fair

values at the acquisition date, except for non-current assets (or disposal groups) that are classifi ed as held for sale in

accordance with AASB 5 ‘Non-current Assets Held for Sale and Discontinued Operations’, which are recognised and

measured at fair value less costs to sell.


37

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost

of the business combination over the Group’s interest in the net fair value of the identifi able assets, liabilities and

contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s

identifi able assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is

recognised immediately in profi t or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair

value of the assets, liabilities and contingent liabilities recognised.

(d) Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits. Cash equivalents are short-term, highly

liquid Investments that are readily convertible to known amounts of cash and which are subject to an insignifi cant risk

of changes in value. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.

(e) Derivative fi nancial instruments

The Group enters into fi nancial instruments, including derivative fi nancial instruments, to manage its exposure to

interest rate and foreign exchange risk. Refer to note 35 for further details. Derivatives are initially recognised at fair

value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each

reporting date. The resulting gain or loss is recognised in profi t or loss immediately unless the derivative is designated

and effective as a hedging instrument, in which event, the timing of the recognition in profi t or loss depends on the

nature of the hedge relationship. The Group designates certain fi nancial Instruments as hedges of highly probable

forecast transactions (cash fl ow hedges) or hedges of net investments in foreign operations.

Cash fl ow hedge

The effective portion of charges in the fair value of derivatives that are designated and qualify as cash fl ow hedges

are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profi t or loss as

part of other expenses or other income. Amounts deferred in equity are recycled in profi t or loss in the periods when

the hedged item is recognised in profi t or loss. However, when the forecast transaction that is hedged results in the

recognition of a non-fi nancial asset or a non-fi nancial liability, the gains and losses previously deferred in equity are

transferred from equity and included in the initial measurement of the cost of the asset or liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires

or is sold, terminated, or exercised, or no longer qualifi es for hedge accounting. Any cumulative gain or loss deferred

in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised

in profi t or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was

deferred in equity is recognised immediately in profi t or loss.

Hedges of net investments on foreign operations

Hedges of net investments on foreign operations are accounted for similarly to cash fl ow hedges. Any gain or loss on

the hedging instrument relating to the effective portion of the hedge is recognised in the foreign currency translation

reserve; the gain or loss relating to the ineffective portion is recognised immediately in profi t and loss. Gains and

losses deferred in the foreign currency translation reserve are recognised in profi t or loss when the foreign operation is

disposed.


38



(f) Dividends

A provision for dividends is not recognised as a liability unless the dividend is declared, determined or publicly

recommended on or before the reporting date.

(g) Employee benefi ts

A liability is recognised for benefi ts accruing to employees in respect of wages and salaries, annual leave and long

service leave when it is probable that settlement will be required and they are capable of being measured reliably.

Liabilities recognised in respect of employee benefi ts expected to be settled within 12 months, are measured at

their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in

respect of employee benefi ts which are not expected to be settled within 12 months are measured as the present

value of the estimated future cash outfl ows to be made by the Group in respect of services provided by employees

up to reporting date. Contributions to defi ned contribution superannuation plans are expensed when incurred.

(h) Goods and services tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the

cost of acquisition of an asset or as part of an item of expense; or

ii. for receivables and payables which are recognised inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or

payables. Cash fl ows are included in the cash fl ow statement on a gross basis. The GST component of cash fl ows

arising from investing and fi nancing activities which is recoverable from, or payable to, the taxation authority, is

classifi ed as operating cash fl ows.

(i) Impairment of other tangible and intangible assets

At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine

whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the

recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where

the asset does not generate cash fl ows that are independent from other assets, the Group estimates the recoverable

amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of

allocation can be identifi ed, corporate assets are also allocated to individual cash-generating units, or otherwise they

are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis

can be identifi ed.

Intangible assets with indefi nite useful lives are tested for impairment annually and whenever there is an indication that

the asset may be impaired.

Recoverable amount is the higher of fair value, less costs to sell and value in use. In assessing value in use, the

estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that refl ects current

market assessments of the time value of money and the risks specifi c to the asset for which the estimates of future

cash fl ows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the

carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is

recognised in profi t or loss immediately, unless the relevant asset is carried at fair value in which case the impairment

loss is treated as a revaluation decrease.


39

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased

to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does

not exceed the carrying amount that would have been determined had no impairment loss been recognised for the

asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profi t or loss immediately,

unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a

revaluation income.

(j) Income tax

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable

profi t or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively

enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent

that it is unpaid (or refundable).

Deferred tax

Deferred tax is accounted for using the balance sheet liability method. Temporary differences are differences between

the tax base of an asset or liability and its carrying amount in the balance sheet. The tax base of an asset or liability is

the amount attributed to that asset or liability for tax purposes.

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are

recognised to the extent that it is probable that suffi cient taxable amounts will be available against which deductible

temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities

are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and

liabilities (other than as a result of a business combination) which affects neither taxable income nor accounting profi t.

Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from the initial

recognition of goodwill.

Deferred tax liabilities are recognised for taxable temporary difference associated with investments in subsidiaries,

branches and associates, and interest in joint ventures except where the Group is able to control the reversal of

the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets arising from deductible temporary differences associated with these investments and interests are

only recognised to the extent that it is probable that there will be suffi cient taxable profi ts against which to utilise the

benefi ts of the temporary difference and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the

asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted

or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets refl ects the tax

consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or

settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority

and the company/Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax is recognised as an expense or income in the income statement, except when it relates

to items credited or debited directly to equity, in which case the deferred tax is also recognised directly in equity, or

where it arises from the initial accounting for a business combination, in which case it is taken into account in the

determination of goodwill or excess.


40



Tax consolidation

The company and all its wholly-owned Australian resident entities are part of a tax-consolidated group under

Australian taxation law. JB Hi-Fi Limited is the head entity in the tax-consolidated group. Tax expense/income,

deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the

tax-consolidated group are recognised in the separate fi nancial statements of the members of the tax-consolidated

group using the ‘separate taxpayer within group’ approach by reference to the carrying amounts in the separate

fi nancial statements of each entity and the tax values applying under tax consolidation. Current tax liabilities and

assets and deferred tax assets arising from unused tax losses and relevant tax credits of the members of the

tax-consolidated group are recognised by the company (as head entity in the tax-consolidated group).

Due to the existence of a tax funding arrangement between the entities in the tax-consolidated group, amounts

are recognised as payable to or receivable by the company and each member of the group in relation to the tax

contribution amounts paid or payable between the parent entity and the other members of the tax-consolidated

group in accordance with the arrangement. Further information about the tax funding arrangement is detailed in

note 7 to the fi nancial statements.

Where the tax contribution amount recognised by each member of the tax consolidated group for a particular period

is different to the aggregate of the current tax liability or asset and any deferred tax asset arising from unused tax

losses and tax credits in respect of that period, the difference is recognised as a contribution from (or distribution to)

equity participants.

(k) Intangible assets

Intangible assets acquired in a business combination

All potential intangible assets acquired in a business combination are identifi ed and recognised separately from

goodwill where they satisfy the defi nition of an intangible asset and their fair value can be measured reliably.

Brand names and trademarks

Brand names recognised by the company have an indefi nite life and are not amortised. Each period, the useful life

of this asset is reviewed to determine whether events and circumstances continue to support an indefi nite useful life

assessment for the asset. Such assets are tested for impairment in accordance with the policy stated in note 2(i).

Rights to Profi t Share

Management rights in relation to the profi t share agreement of the Highpoint store have been recorded at the cost of

acquisition. The directors gave due consideration to the technical and commercial life of the rights to determine their

useful life and have assessed them to have an indefi nite life. The profi t share is not amortised and the carrying value is

tested for impairment as part of the annual testing of cash generating units.

(l) Inventories

Inventories are valued at the lower of cost and net realisable value. Net realisable value represents the estimated

selling price less all estimated costs necessary to make the sale.

(m) Investments

Investments in subsidiaries are recorded at cost. Investments in associates are accounted for under the equity

method in the consolidated fi nancial statements and the cost method in the company fi nancial statements.


41

(n) Leased assets

Leases are classifi ed as fi nance leases, whenever the terms of the lease transfer substantially all the risks and

rewards of ownership of the leased asset to the lessee. All other leases are classifi ed as operating leases.

Assets held under fi nance leases are initially recognised at their fair value or, if lower, at amounts equal to the present

value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to

the lessor is included in the balance sheet as a fi nance lease obligation.

Lease payments are apportioned between fi nance charges and reduction of the lease obligation so as to achieve a

constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income

unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the

Group’s general policy or borrowing costs. Finance leased assets are amortised on a straight line basis over the

estimated useful life of the asset.

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where

another systematic basis is more representative of the time pattern in which economic benefi ts from the leased asset

are consumed.

Lease incentives

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a

liability. The aggregate benefi ts of incentives are recognised as a reduction of rental expense on a straight-line basis,

except where another systematic basis is more representative of the time pattern in which economic benefi ts from

the leased asset are consumed.

(o) Payables

Trade payables and other accounts payable are recognised when the Group becomes obliged to make future

payments resulting from the purchase of goods and services.

(p) Plant and equipment

Plant and equipment, leasehold improvements and equipment under fi nance leases are stated at cost less

accumulated depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of

the item. In the event that settlement of all or part of the purchase consideration is deferred, cost is determined by

discounting the amounts payable in the future to their present value as at the date of acquisition.

Depreciation is provided on plant and equipment. Depreciation is calculated on a straight line basis so as to write

off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements

are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line

method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual

reporting period with the effect of any changes recognised on a prospective basis.

The following estimated useful lives are used in the calculation of depreciation:

• Leasehold improvements 2 to 10 years

• Plant and equipment 4 to 12 years

• Equipment under fi nance lease 2 to 10 years

(q) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,

it is probable that the Group will be required to settle the obligation and a reliable estimate can be made of the

amount of the obligation.


42



The amount recognised as a provision is the best estimate of the consideration required to settle the present

obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a

provision is measured using the cashfl ows estimated to settle the present obligation, its carrying amount is the

present value of those cashfl ows.

When some or all of the economic benefi ts required to settle a provision are expected to be recovered from a third

party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the

amount of the receivable can be measured reliably.

(r) Revenue

Revenue is recognised to the extent that it is probable that the economic benefi ts will fl ow to the consolidated entity

and the revenue can be reliably measured. The following specifi c recognition criteria must be met before revenue is

recognised.

Sale of goods

Revenue from the sale of goods is recognised when the consolidated entity has transferred to the buyer the

signifi cant risks and rewards of ownership of the goods.

Dividend and interest revenue

Dividend revenue from investments is recognised when the shareholder’s right to receive payment has been

established.

Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate

applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the

fi nancial asset to that assets net carrying amount.

(s) Trade Receivables

Trade receivables are carried at cost less provision for impairment.

(t) Financial Instruments Issued by the Company

Debt and equity instruments are classifi ed as either liabilities or as equity in accordance with the substance of the

contractual arrangement.

Transaction costs arising from the issue of equity instruments are recognised directly in equity as a reduction of the

proceeds of the equity instruments to which the costs relate.

Transaction costs are the costs that are incurred directly in connection with the issue of these equity instruments and

which would not have been incurred had those instruments not been issued.

Interest and dividends are classifi ed as expenses or as distributions of profi t consistent with the balance sheet

classifi cation of the related debt or equity instrument or component parts of compound instruments.

(u) Share Based Payments

Equity-settled share-based payments granted after 7 November 2002, which were unvested as at 1 January 2005,

are measured at fair value of the equity instrument at the date of grant. Fair value is measured by use of the Black

Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for

the effects of non-transferability, exercise restrictions, and behavioural considerations. Future details on how the fair

value of equity-settled share based transactions has been determined can be found in note 24.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line

basis over the vesting period, based on the Group’s estimate of shares that will eventually vest.


43

(v) Goodwill

Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business

combination over the acquirer’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities

recognised. Goodwill is subsequently measured at its cost less any impairment losses.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (CGUs),

or groups of CGUs, expected to benefi t from the synergies of the business combination. CGUs (or groups of CGUs)

to which goodwill has been allocated are tested for impairment annually, or more frequently If events or changes in

circumstances indicate that goodwill might be impaired.

If the recoverable amount of the CGU (or groups of CGUs) is less than the carrying amount of the CGU (or groups of

CGUs), the impairment loss is allocated fi rst to reduce the carrying amount of any goodwill allocated to the CGU (or

groups of CGUs) and then to the other assets in the CGU (or groups of CGUs) pro-rata on the basis of the carrying

amount of each asset in the CGU (or groups of CGUs). An impairment loss recognised for goodwill is recognised

immediately in profi t or loss and is not reversed in a subsequent period.

On disposal of an operation within a CGU, the attributable amount of goodwill is included in the determination of the

profi t or loss on disposal of the operation.

(w) Foreign currency

The individual fi nancial statements of each Group entity are presented in the currency of the primary economical

environment in which the entity operates (Its functional currency). For the purpose of the consolidated fi nancial

statements, the results and fi nancial position of each entity are expressed in Australian dollars, which is the functional

currency of JB Hi-Fi Limited, and the presentation currency for the consolidated fi nancial statements.

In preparing the fi nancial statements of the individual entities, transactions in currencies other than the entity’s

functional currency (foreign currencies) are recorded at the rate of exchange prevailing on the dates of the

transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the

rates prevailing at the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign

currencies are retranslates at the rates prevailing on the date when the fair value was determined. Non-monetary

Items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profi t or loss in the period in which they arise except that:

• exchange differences which relate to assets under construction for future productive use, which are included

in the cost of those assets where they are regarded as an adjustment to interest costs on foreign currency

borrowings;

• exchange differences on transactions entered into in order to hedge certain foreign currency risks; and

• exchange differences on monetary items receivable from or payable to a foreign operation for which settlement

is neither planned or likely to occur, which form part of the net investment in a foreign operation, and which are

recognised in the foreign currency translation reserve and recognised in profi t or loss on disposal of the net

investment.

On consolidation, the assets and liabilities of the Group’s foreign operations (including comparatives) are translated

into Australian dollars at exchange rates prevailing on the balance sheet date. Income and expense items (including

comparatives) are translated at the average exchange rates for the period, unless exchange rates fl uctuate

signifi cantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange

differences arising, if any, are classifi ed as equity and transferred to the Group’s translation reserve. Such exchange

differences are recognised in profi t or loss in the period in which the foreign operation is disposed.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity on or after the date of transition to

A-IFRS are treated as assets and liabilities of the foreign entity and translated at exchange rates prevailing at the

reporting date. Goodwill arising on acquisitions before the date of transition to A-IFRS is treated as an Australian

dollar denominated asset.


44



(x) Financial assets

Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a

contract whose terms require delivery of the investment within the timeframe established by the market concerned,

and are initially measured at fair value, net of transaction costs except for those fi nancial assets classifi ed as at fair

value through profi t or loss which are initially measured at fair value.

Subsequent to initial recognition, investments in subsidiaries are measured at cost in the company fi nancial

statements. Subsequent to initial recognition, investments in associates are accounted for under the equity method in

the consolidated fi nancial statements and the cost method in the company fi nancial statements.

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 2, management is required to make

judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent

from other sources. The estimates and associated assumptions are based on historical experience and various other

factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the

judgments. Actual results may differ from these estimates.

The estimates and judgements that have a signifi cant risk of causing a material adjustment to the carrying amounts of

assets and liabilities within the next fi nancial year are set out as appropriate in the Notes to the Financial Statements.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates and

underlying assumptions are recognised in the period in which the estimate is revised if the revision affects only that

period, or in the period of the revision and future periods if the revision affects both current and future periods.


2007

$’000

2006

$’000

2007

$’000

2006

$’000

4. REVENUE

An analysis of the Group’s revenue for the year is as follows:

Revenue from the sale of goods 1,281,837 945,821 – –

Interest:

Loans and receivables – – 635 2,756

Other entities 1,302 672 – –

Dividends:

Subsidiaries – – 9,386 7,600

Other entities – – – 118

Other income 631 878 12 –

1,933 1,550 10,033 10,474

1,283,770 947,371 10,033 10,474


45


2007

$’000

2006

$’000

2007

$’000

2006

$’000

5. FINANCE COSTS

Interest on loans 7,305 5,683 – 1,092

Other interest expense 136 279 – 205

Finance lease charge 16 448 – –

7,457 6,410 – 1,297

The weighted average effective interest rate on loans was 6.8% (2006: 6.0%).


2007

$’000

2006

$’000

2007

$’000

2006

$’000

6. PROFIT FOR THE YEAR

(a) Gains and losses

Profi t for the year has been arrived at after

crediting/(charging) the following gains and losses:

Gain/(loss) on disposal of plant and equipment (1,935) (46) – –

Net foreign exchange gains/(losses) (5) – – –

(1,940) (46) – –

(b) Other expenses

Profi t for the year includes the following expenses:

Cost of sales 998,478 733,395 – –

Inventory:

Shrinkage 5,699 6,332 – –

Impairment of trade receivables 132 183 – –

Depreciation of non-current assets 10,854 7,439 – –

Operating lease rental expenses:

Minimum lease payments 28,074 16,872 – –

Employee benefi t expense:

Post employment benefi ts:

Defi ned contribution plans 9,606 7,461 – –

Share-based payments:

Equity settled share-based payments 937 743 937 743

Other employee benefi ts 123,928 96,915 – –

134,471 105,119 937 743


46




2007

$’000

2006

$’000

2007

$’000

2006

$’000

7. INCOME TAXES

Income tax recognised in profi t or loss

Tax expense comprises:

Current tax expense 19,795 14,725 86 407

Adjustments recognised in the current year in relation to

the current tax of prior years (122) 113 – –

Deferred tax expense/(income) relating to the origination

and reversal of temporary differences (1,670) (2,884) – –

Total tax expense/(income) 18,003 11,954 86 407

The prima facie income tax expense on pre-tax accounting

profi t from operations reconciles to

the income tax expense in the fi nancial statements

as follows:

Profi t from operations 59,379 38,800 8,737 8,094

Income tax expense calculated at 30% 17,814 11,640 2,621 2,428

Effect of expenses that are not deductible in determining

taxable profi t 311 201 281 223

Effect of transactions within the tax-consolidated Group

that are exempt from taxation – – (2,816) (2,244)

18,125 11,841 86 407

(Over)/under provision of income tax in previous year (122) 113 – –

18,003 11,954 86 407

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on

taxable profi ts under Australian tax law. There has been no change in the corporate tax rate when compared with the previous

reporting period.

Income tax recognised directly in equity

The following current and deferred amounts were charged/(credited) directly to equity during the period:


2007

$’000

2006

$’000

2007

$’000

2006

$’000

Deferred tax

Tax effect of hedge gains/(losses) in reserves 132 – – –

132 – – –

Current tax liabilities

Income tax payable attributable to:

Parent entity 86 407 86 407

Entities in the tax-consolidated group 7,110 4,042 7,110 4,042

Other 380 4 – –

7,576 4,453 7,196 4,449


47

7. INCOME TAXES (cont.)

Deferred tax balances

Deferred tax assets/(liabilities) arise from the following:

Consolidated

2007

Opening

balance

$’000

Charged to

income

$’000

Acquisitions

$’000

Closing

balance

$’000

Temporary differences

Gross deferred tax liabilities

Trade and other receivables (798) 72 – (726)

Plant and equipment (288) (626) – (914)

Cash fl ow Hedge (200) (52) – (252)

(1,286) (606) – (1,892)

Gross deferred tax assets

Trade and other receivables 85 (22) – 63

Inventories 1,242 385 199 1,826

Plant and equipment 347 (118) 248 477

Tax bases without an asset carrying amount 195 (195) – –

Other fi nancial liabilities – 106 – 106

Trade and other payables 642 312 – 954

Provisions 3,644 1,808 108 5,560

6,155 2,276 555 8,986

4,869 1,670 555 7,094

Consolidated

2006

Opening

balance

$’000

Charged to

income

$’000

Acquisitions

$’000

Closing

balance

$’000

Temporary differences

Gross deferred tax liabilities

Trade and other receivables (1,374) 576 – (798)

Plant and equipment (334) 46 – (288)

Cash fl ow Hedge – (200) – (200)

(1,708) 422 – (1,286)

Gross deferred tax assets

Trade and other receivables 54 31 – 85

Inventories 268 973 – 1,241

Plant and equipment 125 222 – 347

Tax bases without an asset carrying amount – 195 – 195

Trade and other payables 494 148 – 642

Provisions 2,751 893 – 3,644

3,692 2,462 – 6,155

1,984 2,884 – 4,868

The company has no taxable and deductible temporary differences in the current or prior report periods.


48



7. INCOME TAXES (cont.)

Tax consolidation

Relevance of tax consolidation to the group

The company and its wholly-owned Australian resident entities have formed a tax-consolidated group with effect

from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax-consolidated

group is JB Hi-Fi Limited. The members of the tax-consolidated group are identifi ed at note 29.

Nature of tax funding arrangements and tax sharing agreements

Entities within the tax-consolidated group have entered into a tax funding arrangement and a tax-sharing agreement

with the head entity. Under the terms of the tax funding arrangement, JB Hi-Fi Limited and each of the entities in the

tax-consolidated group have agreed to pay a tax equivalent payment to or from the head entity, based on the current

tax liability or current tax asset of the entity. Such amounts are refl ected in amounts receivable from or payable to

other entities in the tax-consolidated group.

The tax sharing agreement entered into between members of the tax-consolidated group provides for the

determination of the allocation of income tax liabilities between the entities should the head entity default on its tax

payment obligations or if an entity should leave the tax-consolidated group. The effect of the tax sharing agreement

is that each member’s liability for tax payable by the tax-consolidated group is limited to the amount payable to the

head entity under the tax funding agreement.

8. KEY MANAGEMENT PERSONNEL REMUNERATION

Details of key management personnel

The following persons acted as directors of the company during and since the end of the fi nancial year:

J. King Chairman, Board and Remuneration Committee, Non-executive Director

P. Elliott Chairman, Audit and Risk Management Committee, Non-executive Director

G. Levin Non-executive Director

W. Fraser Non-executive Director



The highest remunerated company and Group executives for the 2007 fi nancial year were:



F. Garonzi General Manager

R. Murray Chief Financial Offi cer

S. Browning Marketing Director

Key management personnel compensation

The aggregate compensation of the key management personnel of the consolidated entity and the company is set

out below:


2007

$

2006

$

2007

$

2006

$

Short term employee benefi ts 4,252,117 3,217,930 359,700 359,700

Post-employment benefi ts 228,485 223,726 – –

Share-based payments 567,550 507,766 – –

5,048,152 3,949,422 359,700 359,700


49

9. SHARE-BASED PAYMENTS

Executive and employee share option plan

The following reconciles the outstanding share options granted under the employee and executive share option plan

at the beginning and end of the fi nancial year:

2007 2006

Number of

options

Weighted average

exercise price $ Number of options

Weighted average

exercise price $

Balance at beginning of the fi nancial year 4,009,227 1.51 3,688,896 1.91

Granted during the fi nancial year 1,095,000 5.16 946,664 3.50

Exercised/lapsed during the fi nancial year (1,232,078) 1.94 (626,333) 0.97

Balance at end of the fi nancial year (i) 3,872,149 3.36 4,009,227 2.43

Exercisable at end of the fi nancial year 842,077 2.36 228,272 1.51

(i) the share options outstanding at the end of the fi nancial year had a weighted exercise price of $3.36 (2006: $2.43), and a weighted average

remaining contractual life of 1,050 days (2006: 1,114 days).


2007

$

2006

$

2007

$

2006

$

10. REMUNERATION OF AUDITORS

Auditor of the parent entity

Audit of the fi nancial report

– Current year 266,500 275,000 – –

Taxation services including due diligence 128,763 38,570 – –

Other non-audit services:

Due diligence on business acquired (i) 65,792 – – –

Review on transition to A-IFRS – 26,900

Other 5,000 – – –

466,055 340,470 – –

Other auditors

Audit of the fi nancial report

– Current year 24,889 – – –

Other non-audit services:

Review on business acquired 19,419 – – –

44,308 – – –

510,363 340,470 – –

(i) paid to Deloitte NZ

The auditor of JB Hi-Fi Limited is Deloitte Touche Tohmatsu.

The auditor of JB Hi-Fi Group (NZ) Limited (formerly Hill & Stewart Appliances Limited) is KPMG.


50




2007

$’000

2006

$’000

2007

$’000

2006

$’000

11. TRADE AND OTHER RECEIVABLES

Trade receivables 13,867 5,946 – –

Allowance for doubtful debts (211) (284) – –

13,656 5,662 – –

Goods and services tax (GST) recoverable 469 983 – –

Non-trade receivables 31,052 21,637 – 100

45,177 28,282 – 100

12. INVENTORIES

Finished goods 211,311 161,137 – –

13. OTHER ASSETS

Current

Prepayments 2,407 1,714 – –

Other deposits 1,142 1,131 – –

3,549 2,845 – –

14. INVESTMENTS ACCOUNTED FOR USING THE EQUITY

METHOD

Investments in associates (Company: at cost) 689 689 450 450

Ownership interest Published fair value

Name of entity Principal activity

Country of

incorporation

2007

%

2006

%

2007

$’000

2006

$’000

Rocket Replacements Pty Ltd Insurance

replacements

Australia 50%(i) 50%(i) n/a n/a

(i) Pursuant to a shareholder agreement the company has the right to cast 50% of the votes at shareholder meetings.

Consolidated

2007

$’000

2006

$’000

Summarised fi nancial information in respect of the Group’s

associates is set out below:

Financial position:

Total assets 5,723 5,346

Total liabilities (4,505) (4,106)

Net assets 1,218 1,240

Total Group’s share of associates net assets 609 620

Financial performance:

Total revenue 9,315 7,998

Total profi t for the year – 340

Group’s share of associates’ profi t before tax – 239

Group’s share of associates income tax expense – (69)

Group’s share of associate’s profi t/(loss) – 170


51


2007

$’000

2006

$’000

2007

$’000

2006

$’000

15. OTHER NON-CURRENT FINANCIAL ASSETS

Investments in subsidiaries – – 24,316 24,316

Shares in listed entities 3 6 – –

3 6 24,316 24,316

Loans to subsidiaries – – 20,107 14,821

– – 20,107 14,821

Interest rate swap 844 668 – –

847 674 44,423 39,137

Consolidated

Leasehold

improvements

at cost

$’000

Plant and

equipment

at cost

$’000

Equipment

under fi nance

lease at cost

$’000

Total

$’000

16. PLANT AND EQUIPMENT

Gross carrying amount

Balance at 1 July 2005 5,670 11,004 32,229 48,903

Additions 10,062 18,983 – 29,046

Disposals (5) (252) (392) (649)

Transfers 7,571 23,160 (30,731) –

Balance at 1 July 2006 23,298 52,895 1,107 77,300

Additions 13,187 21,219 – 34,406

Disposals (1,136) (3,003) – (4,139)

Acquisitions through business combinations 1,848 274 – 2,122

Net foreign currency exchange differences 72 20 – 92

Transfers – 827 (827) –

Balance at 30 June 2007 37,269 72,232 280 109,781

Accumulated depreciation

/amortisation and impairment

Balance at 1 July 2005 (2,301) (4,060) (6,634) (12,995)

Disposals 4 136 200 341

Depreciation expense (2,356) (5,075) (8) (7,439)

Transfers (1,221) (4,860) 6,081 –

Balance at 1 July 2006 (5,874) (13,859) (360) (20,093)

Disposals 895 1,129 – 2,024

Depreciation expense (3,763) (7,005) (86) (10,854)

Transfers – (248) 248 –

Balance at 30 June 2007 (8,742) (19,983) (198) (28,923)

Net book value

As at 30 June 2006 17,425 39,036 747 57,206

As at 30 June 2007 28,526 52,250 82 80,858


52




2007

$’000

2006

$’000

2007

$’000

2006

$’000

17. GOODWILL


Balance at beginning of fi nancial year 20,015 20,015 – –

Additional amounts recognised from business combinations

occurring during the period 13,840 – – –

Effect of FX translation of subsidiary 255 – – –

Balance at end of fi nancial year 34,110 20,015 – –

Net book value

At the beginning of the fi nancial year 20,015 20,015 – –

At the end of the fi nancial year 34,110 20,015 – –

The goodwill relates to the Group’s acquisition of Clive Anthonys and Impact Records (Canberra) on 1 July 2004 and

Hill and Stewart on 1 March 2007. The recoverable amount is based on the cash fl ow generated by the respective

businesses. During the period, there has been no indication of impairment to the current value of goodwill. The

company used a discount rate of 15% in determining value in use of goodwill. On 1 March 2007, the Group acquired

Hill & Stewart Appliances Limited for $19,231,000. Refer to note 30 for further details.


Brand Names

Rights to

profi t share Total Total

$’000 $’000 $’000 $’000

18. OTHER INTANGIBLE ASSETS


Balance at 1 July 2005 43,094 3,542 46,636 –

Additions – – – –

Balance at 1 July 2006 43,094 3,542 46,636 –

Additions – – – –

Balance at 30 June 2007 43,094 3,542 46,636 –

Net book value

As at 30 June 2006 43,094 3,542 46,636 –

As at 30 June 2007 43,094 3,542 46,636 –


2007

$’000

2006

$’000

2007

$’000

2006

$’000

19. TRADE AND OTHER PAYABLES

Trade payables 168,196 114,650 – –

Other creditors and accruals 9,573 4,014 10 8

Deferred income 6,611 4,098 – –

Goods and services tax (GST) payable 908 – – –

185,288 122,762 10 8


53


2007

$’000

2006

$’000

2007

$’000

2006

$’000

20. BORROWINGS

Secured - at amortised cost

Current

Hire purchase lease liabilities (i) (note 28) 67 519 – –

Bank overdraft (ii) 635 – – –

702 519 – –

Non-current

Hire purchase lease liabilities (i) (note 28) 18 – – –

Bank loans (iii) 117,714 100,042 – –

117,732 100,042 – –

118,434 100,561 – –

(i) Secured by the assets leased, the current market value of which exceeds the value of the hire purchase liability.

(ii) Secured by a fi xed and fl oating charge over the assets of JB Hi-Fi Group (NZ) Limited, the current market value of which exceeds the value of the

overdraft.

(iii) Secured by a fi xed and fl oating charge over the Group’s assets, the current market value of which exceeds the value of the loan.


2007

$’000

2006

$’000

2007

$’000

2006

$’000

21. PROVISIONS

Current

Employee benefi ts 15,166 9,508 – –

Non-current

Employee benefi ts 682 771 – –

15,848 10,279 – –

22. OTHER LIABILITIES

Current

Lease accrual 291 1,020 – –

Lease incentive 953 82 – –

1,244 1,102 – –

Non-current

Lease accrual 2,125 660 – –

Lease incentive 4,661 3,370 – –

6,786 4,030 – –

8,030 5,132 – –


54




2007

$’000

2006

$’000

2007

$’000

2006

$’000

23. ISSUED CAPITAL

104,628,745 fully paid ordinary shares

(2006: 103,465,667) 35,883 33,036 35,883 33,036

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share

capital from 1 July 1998. Therefore, the company does not have a limited amount of authorised capital and issued

shares do not have a par value.

2007 2006

No.

’000 $’000

No.

’000 $’000

Fully paid ordinary shares

Balance at beginning of the fi nancial year 103,466 33,036 102,840 32,428

Issue of shares under employee & executive share

option plan (note 9) 1,163 2,235 626 608

Transfer from equity settled benefi ts reserve (note 24) – 613 – –

Balance at end of the fi nancial year 104,629 35,884 103,466 33,036

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Share options

In accordance with the provisions of the employee and executive share option plan, as at 30 June 2007, employees

and executives have options over 3,872,149 ordinary shares (of which 3,030,072 were unvested), in aggregate, with

various expiry dates. As at 30 June 2006, employees and executives had options over 4,009,227 ordinary shares (of

which 3,780,955 were unvested), in aggregate, with various expiry dates.

Share options granted under the employee and executive share options plan carry no rights to dividends and no

voting rights. Further details of the employee and executive share option plan are contained in the Director’s Report.


2007

$’000

2006

$’000

2007

$’000

2006

$’000

24. RESERVES

Equity-settled benefi ts 1,711 1,387 1,711 1,387

Foreign currency translation 324 – – –

Hedge – interest rate swap 542 649 – –

Hedge – net investment (233) – – –

2,344 2,036 1,711 1,387

Equity-settled benefi ts reserve

Balance at beginning of the fi nancial year 1,387 644 1,387 644

Share-based payment 937 743 937 743

Transfer to share capital (613) – (613) –

Balance at end of the fi nancial year 1,711 1,387 1,711 1,387


55

24. RESERVES (cont.)

The equity-settled benefi ts reserve arises on the grant of share options to employees and executives under the

employee and executive share option plan. Amounts are transferred out of the reserve and into issued capital when

the options are exercised. Further information about share-based payments to employees is made in note 9 to the

fi nancial statements.


2007

$’000

2006

$’000

2007

$’000

2006

$’000

Foreign currency translation reserve

Balance at beginning of the fi nancial year – – – –

Translation of foreign operations 324 – – –

Balance at end of the fi nancial year 324 – – –

Exchange differences relating to the translation of the Group’s foreign controlled entities from their functional

currencies into Australian dollars are brought to account directly to the foreign currency translation reserve.


2007

$’000

2006

$’000

2007

$’000

2006

$’000

Hedging Reserve - Interest rate swaps

Balance at beginning of the fi nancial year 649 – – –

Gain/(loss) recognised:

Interest Rate Swaps 29 669 – –

Transferred to profi t or loss:

Interest Rate Swaps (136) (20) – –

Balance at end of the fi nancial year 542 649 – –

The hedging reserve - interest rate swaps, represents hedging gains and losses recognised on the effective portion of

cash fl ow hedges with respect to the group’s interest rate swaps. The cumulative deferred gain or loss on the interest

rate swaps is recognised in the profi t or loss when the hedged transaction impacts the profi t or loss.


2007

$’000

2006

$’000

2007

$’000

2006

$’000

Hedging Reserve - net investment

Balance at beginning of the fi nancial year – – – –

Gain/(loss) recognised:

Foreign currency net investment loan (233) – – –

Balance at end of the fi nancial year (233) – – –

The hedging reserve - net investment, represents hedging gains and losses recognised on the effective portion of

foreign currency loans designated as net investment hedges. The gains and losses deferred in the hedging reserve -

net investment are recognised in the profi t or loss when the foreign operation is disposed.


56




2007

$’000

2006

$’000

2007

$’000

2006

$’000

25. RETAINED EARNINGS

Balance at beginning of the fi nancial year 43,880 25,495 808 549

Net profi t attributable to members of the parent entity 40,389 25,813 8,651 7,687

Dividends provided for or paid (note 27) (9,386) (7,428) (9,386) (7,428)

Balance at end of the fi nancial year 74,883 43,880 73 808

Consolidated

2007

Cents per share

2006

Cents per share

26. EARNINGS PER SHARE

Basic earnings per share 38.78 25.03

Diluted earnings per share 38.08 24.53

Basic earnings per shareThe earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are

as follows:

Consolidated

2007

$’000

2006

$’000

Earnings used in the calculation of basic earnings per share 40,389 25,813

2007

No ’000

2006

No ’000

Weighted average number of ordinary shares for the purposes of

basic earnings per share 104,145 103,117

Diluted earnings per shareThe earnings used in the calculation of diluted earnings per share are as follows:

2007

$’000

2006

$’000

Earnings used in the calculation of diluted earnings per share 40,389 25,813

The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the

weighted average number of ordinary shares used in the calculation of basic earnings per share as follows:

2007

No. ’000

2006

No. ’000

Weighted average number of ordinary shares for the purposes of

basic earnings per share 104,145 103,117

Shares deemed to be issued for no consideration in respect of:

Employee options 1,909 2,136

Weighted average number of ordinary shares for the purpose of

diluted earnings per share 106,054 105,253


57

2007 2006

Cents

per share

Total

$’000

Cents

per share

Total

$’000

27. DIVIDENDS

Recognised amounts


Interim dividend: 5.0 5,231 3.6 3,725

Franked to 30% (Prior year: 30%)

Final dividend: 4.0 4,155 3.6 3,703

Franked to 30% (Prior year: 30%) 9,386 7,428

Unrecognised amounts


Final dividend

Franked to 30% (Prior year: 30%) 6.0 6,278 4.0 4,138

In respect of the fi nancial year ended 30 June 2007, the directors have recommended the payment of a fi nal dividend

of 6 cents per share franked to 100% at 30% corporate income tax rate. The record date is 21 August 2007.

Company

2007

$’000

2006

$’000

Adjusted franking account balance 28,347 16,739

Impact on franking account balance of dividends not recognised 2,691 1,241

Income tax consequences of unrecognised dividends – –

28. LEASES

Hire purchase liabilities

Leasing arrangements

Hire purchase leases principally relate to motor vehicles and store fi t out expenditure with lease terms of between

three and fi ve years. The Group has the option to purchase the equipment for a nominal amount at the conclusion of

the leasing arrangements.

Finance Lease Liabilities

MinimumFuture Lease Payments

Present Value of MinimumFuture Lease Payments

Consolidated Company Consolidated Company

2007 2006 2007 2006 2007 2006 2007 2006

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

No later than one year 80 522 – – 67 519 – –

Later than one year and not

later than fi ve years 20 – – – 18 – – –

Later than fi ve years – – – – – – – –

Minimum future lease

payments* 100 522 – – 85 519 – –

Less future fi nance charges (15) (3) – – – – – –

Present value of minimum lease

payments 85 519 – – 85 519 – –

Included in the fi nancial state-

ments as: (note 20)

Current other liabilities 67 519 – –

Non-current other liabilities 18 – – –

85 519 – –

* Minimum future lease payments include the aggregate of all lease payments and any guaranteed residual.


58



28. LEASES (cont.)

Operating leases

Leasing arrangements

Operating leases relate to stores with new lease terms of between two to ten years, with, in some cases an option to

extend. All operating lease contracts contain market review clauses in the event that the company/Group exercises

its option to renew. The company/Group does not have an option to purchase the leased asset at the expiry of the

lease period.

Non-cancellable operating lease commitments


2007

$’000

2006

$’000

2007

$’000

2006

$’000

Not longer than one year 29,394 20,237 – –

Longer than one year and not longer than fi ve years 73,977 52,003 – –

Longer than fi ve years 73,845 47,138 – –

177,216 119,378 – –

29. SUBSIDIARIESOwnership Interest

Name of Entity Country of Incorporation2007

%

2006

%

Parent entity

JB Hi-Fi Limited (i) Australia

Subsidiaries

JB Hi-Fi Group Pty Ltd (ii) Australia 100 100

JB Hi-Fi (A) Pty Ltd (ii) Australia 100 100

Clive Anthonys Pty Ltd (iii) Australia 70 70

JB Hi-Fi Group (NZ) Limited (iv) New Zealand 100 –

JB Hi-Fi NZ Limited (v) New Zealand 100 –

(i) JB Hi-Fi Limited is the head entity within the tax consolidated group

(ii) These wholly-owned subsidiaries are members of the tax consolidated group. These subsidiaries have also entered into a deed of cross

guarantee with JB Hi-Fi Limited pursuant to ASIC Class Order 98/1418 and are relieved from the requirement to prepare and lodge an audited

fi nancial report.

(iii) Acquired a 70% stake on 1 July 2004

(iv) Formerly known as Hill & Stewart Appliances Limited. Acquired on 1 March 2007. Refer to note 30 for further details.

(v) JB Hi-Fi NZ Limited was incorporated in FY07 and is the holding company of JB Hi-Fi Group (NZ) Limited.

The consolidated income statement and balance sheet of the entities party to the deed of cross guarantee are:

Consolidated

2007

$’000

2006

$’000

Income statement

Revenue 1,148,183 837,544

Cost of sales (894,837) (650,931)

Gross profi t 253,346 186,613

Other income 1,920 1,172

Sales and marketing expenses (124,492) (98,821)

Occupancy expenses (42,492) (30,118)

Administration expenses (12,634) (10,474)

Finance costs (7,936) (6,389)

Other expenses (12,810) (8,249)

Profi t before tax 54,902 33,734

Income tax expense (16,722) (10,452)

Profi t for the year 38,180 23,282


59

29. SUBSIDIARIES (cont.)

Consolidated

2007

$’000

2006

$’000

Balance sheet

Current assets

Cash and cash equivalents 13,713 (1,661)

Trade and other receivables 43,327 24,132

Inventories 186,244 147,695

Other 3,461 2,678

Total current assets 246,745 172,844

Non-current assets

Investments accounted for using the equity method 450 450

Other fi nancial assets 42,977 24,989

Plant and equipment 70,496 51,750

Deferred tax assets 5,729 4,206

Goodwill 1,727 1,727

Intangible assets 46,636 46,636

Total non-current assets 168,015 129,758

Total assets 414,760 302,602

Current liabilities

Trade and other payables 162,490 109,675

Borrowings – 314

Current tax liabilities 7,196 4,449

Provisions 13,366 8,419

Other 1,205 1,065

Total current liabilities 184,257 123,922

Non-current liabilities

Borrowings 117,714 100,042

Provisions 623 896

Other 6,676 3,876

Total non-current liabilities 125,013 104,814

Total liabilities 309,270 228,736

Net assets 105,490 73,866

Equity

Issued capital 35,883 33,036

Reserves 2,020 2,036

Retained earnings 67,587 38,794

Total equity 105,490 73,866


60



30. ACQUISITION OF BUSINESSES

Name of businesses acquired Principal activity

Date of

acquisition

Proportion of

shares acquired

%

Cost of

acquisition

$’000

Contribution to

NPAT

$’000

2007

Hill & Stewart Appliances Limited Retailer 1 March 2007 100% 19,231 (93)

19,231 (93)

2006

None – –

Hill & Stewart Appliances Limited

Book

value

Fair value

adjustment

Fair value on

acquisition

Net assets acquired $’000 $’000 $’000

Current assets:

Trade & other receivables 2,701 – 2,701

Inventories 7,589 – 7,589

Other 124 – 124

Non-current assets:

Plant & Equipment 2,122 – 2,122

Other 556 – 556

Current liabilities:

Trade & other payables (4,383) – (4,383)

Provisions – (891) (891)

Other (2,427) - (2,427)

6,282 (891) 5,391

Goodwill on acquisition 13,840

The initial accounting for the acquisition of Hill & Stewart Appliance Limited has only been provisionally determined as

at the reporting date as the fair value of certain assets and contingent liabilities have yet to be fi nally determined.

31. SEGMENT INFORMATION

Information on business segments

The Group operates in one segment being the home consumer products retail industry including audiovisual

equipment, computing equipment, whitegoods, kitchen appliances and other related equipment.

Information on geographical segments

The Group operates in two principal geographical segments - Australia and New Zealand (2006: Australia).

The Group’s revenue from external customers and information about its segment assets by geographical location is

detailed below:

Revenue fromexternal customers

Net profi tafter tax

Segmentassets

Acquisition ofsegment assets

2007 2006 2007 2006 2007 2006 2007 2006

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Australia 1,259,908 945,821 41,469 26,846 420,144 326,845 34,585 29,046

New Zealand 21,929* – (93) – 33,834 – 15,962 –

* Business was acquired on 1 March 2007. Historical revenue for the 12 months to 30 June 2007 was $61,420,000.


61

32. RELATED PARTY TRANSACTIONS

(a) Equity interests in related parties

Details of the percentage of ordinary shares held in subsidiaries and associates are disclosed in note 29 to the

fi nancial statements.

(b) Key management personnel compensation and equity holdings

Details of key management personnel equity holdings are as follows:

Director and executive equity holdings

Fully paid ordinary shares of JB Hi-Fi Limited

2007 Balance at

1 July 2006

No.

Granted as

compensation

No.

Received on

exercise of options

No.

Net other

change

No.

Balance at

30 June 2007

No.

Balance held

nominally

No.

J. King 32,258 – – – 32,258 32,258

P. Elliott 498,600 – – (150,000) 348,600 110,000

G. Levin 300,000 – – (200,000) 100,000 –

W. Fraser 6,451 – – – 6,451 6,451

R. Uechtritz 4,000,000 – 288,251 (288,251) 4,000,000 –

T. Smart 2,080,000 – 194,345 (430,000) 1,844,345 –

F. Garonzi 240,000 – 86,625 – 326,625 160,000

R. Murray 21,334 – 119,958 (21,333) 119,959 –

S. Browning – – 136,625 – 136,625 –

7,178,643 – 825,804 (1,089,584) 6,914,863 308,709

2006

Balance at

1 July 2005

No.

Granted as

compensation

No.

Received on

exercise of options

No.

Net other change

No.

Balance at

30 June 2006

No.

Balance held

nominally

No.

J. King 32,258 – – – 32,258 32,258

P. Elliott 438,600 – – 60,000 498,600 260,000

G. Levin 400,000 – – (100,000) 300,000 –

W. Fraser 6,451 – – – 6,451 6,451

R. Uechtritz 5,107,096 – 115,000 (1,222,096) 4,000,000 –

T. Smart 2,000,000 – 80,000 – 2,080,000 –

F. Garonzi 304,516 – – (64,516) 240,000 160,000

R. Murray 3,225 – 21,334 (3,225) 21,334 –

S. Browning – – – – – –

8,292,146 – 216,334 (1,329,837) 7,178,643 458,709

Share options of JB Hi-Fi Limited

2007

Balance at

1 July 2006

No.

Granted as

compensation

No.

Exercised

No.

Balance at

30 June 2007

No.

Balance vested

at 30 June 2007

No.

Vested and

exercisable

No.

Options vested

during year

No.

R. Uechtritz (i) 851,319 200,000 (288,251) 763,068 – – 288,251

T. Smart(i) 604,603 150,000 (194,345) 560,258 – – 194,345

F. Garonzi(i) 336,051 80,000 (86,625) 329,426 – – 86,625

R. Murray(i) 414,717 80,000 (119,958) 374,759 12,000 12,000 119,958

S. Browning(i) 486,051 80,000 (136,625) 429,426 50,000 50,000 136,625

2,692,741 590,000 (825,804) 2,456,937 62,000 62,000 825,804

(i) Excludes any options that may be approved by the Board in August 2007. The issue of any options to R. Uechtritz and T.Smart, both group

executive directors of the company, is also subject to shareholder approval at the company’s Annual General Meeting in October 2007.


62



32. RELATED PARTY TRANSACTIONS (cont.)

2006

Balance at

1 July 2005

No.

Granted as

compensation

No.

Exercised

No.

Balance at

30 June 2006

No.

Balance vested

at 30 June 2006

No.

Vested and

exercisable

No.

Options vested

during year

No.

R. Uechtritz 864,751 101,568 (115,000) 851,319 – – 115,000

T. Smart 583,035 101,568 (80,000) 604,603 – – 80,000

F. Garonzi 259,875 76,176 – 336,051 – – –

R. Murray 359,875 76,176 (21,334) 414,717 – – 21,334

S. Browning 409,875 76,176 – 486,051 50,000 50,000 50,000

2,477,411 431,664 (216,334) 2,692,741 50,000 50,000 266,334

All employee and executive share options issued to employees and executives during the fi nancial year were made in

accordance with the provisions of the employee and executive share option plan.

During the fi nancial year 825,804 (2006: 216,334) options were exercised by key management personnel at a

weighted average exercise price of $2.06 for 825,804 (2006: 216,334) ordinary shares in JB Hi-Fi Limited

(2006: $1.43). No amounts remain unpaid on the options exercised during the fi nancial year at year end.

(c) Terms and conditions

Sales to and purchases from related parties for goods and services are made in arm’s length transactions at normal

prices and on normal commercial terms.

33. SUBSEQUENT EVENTS

The remaining 30% of Clive Anthonys was purchased on 2 July 2007 for circa $7.0m. There have been no other

matters or circumstances occurring subsequent to the end of the fi nancial year, that has signifi cantly affected, or may

signifi cantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in

future fi nancial years.

34. NOTES TO THE CASH FLOW STATEMENT

(a) Reconciliation of cash and cash equivalents

For the purposes of the cash fl ow statement, cash and cash equivalents includes cash on hand and in banks and

investments in money market instruments, net of outstanding bank overdrafts. Cash and cash equivalents at the end

of the fi nancial year as shown in the cash fl ow statement is reconciled to the related items in the balance sheet as

follows:


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Cash and cash equivalents 23,707 4,493 – 1

(b) Businesses acquired

During the fi nancial year, the Group acquired Hill & Stewart Appliances Limited. The net cash outfl ow on acquisition

was $19,231,000. Refer note 30 for further details of this acquisition.


63

34. NOTES TO THE CASH FLOW STATEMENT (cont.)(c) Financing facilities


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Secured bank overdraft facility:

amount used 635 – – –

amount unused 31,179 30,000 – –

31,814 30,000 – –

Secured indemnity guarantees:

amount used 1,957 1,957 – –

amount unused – – – –

1,957 1,957 – –

Secured bank loan facilities (senior debt):

amount used 117,714 100,561 – –

amount unused 27,286 9,958 – –

145,000 110,519 – –

(d) Reconciliation of profi t for the period to net cash fl ows from operating activities


2007 2006 2007 2006

$’000 $’000 $’000 $’000

Profi t for the period 41,376 26,846 8,651 7,687

(Gain)/loss on sale or disposal of non-current assets 1,935 46 – –

Share of associates’ profi t – (170) – –

Depreciation and amortisation 10,854 7,439 – –

Equity settled share-based payment 937 743 937 743

Income tax paid in relation to other entities in the tax consolidated

group

– – (16,637) (9,778)

Increase/(decrease) in current tax liability 2,774 2,169 2,747 2,067

Increase/(decrease) in deferred tax balances (1,671) (2,883) – –

Changes in net assets and liabilities, net of effects from

acquisition of businesses:

(Increase)/decrease in assets:

Current receivables (14,319) (8,430) 100 (99)

Current inventories (42,585) (58,980) – –

Other current assets (580) (197) – –

Other non-current assets (335) – – 205

Increase/(decrease) in liabilities:

Current payables 58,142 44,896 2 (765)

Current provisions 4,767 2,380 – –

Other current liabilities 141 259 – –

Non-current payables – 96 – –

Non-current provisions (89) 37 – –

Other non-current liabilities 2,682 1,370 – –

Net cash from operating activities 64,029 15,621 (4,200) 60


64



35. FINANCIAL INSTRUMENTS

(a) Financial risk management objectives

The Group’s Corporate Treasury function provides services to the business, co-ordinates access to domestic and

international fi nancial market monitors and manages the fi nancial risks relating to the operations of the Group.

These risks included currency and cash fl ow interest risk.

The Group seeks to minimise the effects of these risks, by using various fi nancial instruments, including derivative

fi nancial instruments. The Group does not enter into or trade fi nancial instruments, including derivative fi nancial

instruments, for speculative purposes. The use of fi nancial derivatives is governed by the Group’s policies approved

by the Board of directors, which provide written principles on the use of fi nancial derivatives. Compliance with policies

and exposure limits is reviewed by the Audit and Risk Management committee on a continuous basis.

(b) Signifi cant accounting policies

Details of the signifi cant accounting policies and methods adopted, including the criteria for recognition, the basis

of measurement and the basis on which income and expenses are recognised, in respect of each class of fi nancial

asset, fi nancial liability and equity instrument are disclosed in note 1 to the fi nancial statements.

(c) Foreign currency risk management

The Group operates internationally and is exposed to foreign exchange risk arising, primarily with respect to the

NZ dollar. The Group has sought to hedge its net investment in their New Zealand operations. Refer to note 2(e) for

further details.

(d) Interest rate risk management

The Group is exposed to interest rate risk as it borrows funds at both fi xed and fl oating interest rates. The risk is

managed by the Group by maintaining an appropriate mix between fi xed and fl oating rate borrowings, by the use

of interest rate swap contracts and forward interest rate contracts. Hedging activities are evaluated regularly to

align with interest rate views and defi ned risk appetite; ensuring optimal hedging strategies are applied, by either

positioning the balance sheet or protecting interest expense through different interest rate cycles.

Interest rate swap contracts

Under interest rate swap contracts, the Group agrees to exchange the difference between fi xed and fl oating rate

interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the

risk of changing interest rates on the fair value of issued fi xed rate debt held and the cash fl ow exposures on the

issued variable debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the

future cash fl ows using the curves at reporting date and the credit risk inherent in the contract, as disclosed below.

The average interest rate is based on the outstanding balances at the start of the fi nancial year.

The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts

outstanding as at reporting date:

Average Contracted

Fixed Interest Rate

Notional Principal

Amount

Fair Value

Outstanding fl oating for fi xed

contracts

2007

%

2006

%

2007

$’000

2006

$’000

2007

$’000

2006

$’000

1 to 2 years 5.7 – 55,000 – 843 –

2 to 5 years – 5.7 – 55,000 – 668

55,000 55,000 843 668

The interest rate swap settles on a quarterly basis and the Group settles the difference on a net basis. The interest

rate swap contract is designated a cash fl ow hedge in order to reduce the Group’s cash fl ow exposure resulting

from variable interest rates on borrowings. The interest rate swap and the interest payments on the loan occur

simultaneously and the amount deferred in equity is recognised in profi t or loss over the loan period.


65

35. FINANCIAL INSTRUMENTS (cont.)

Maturity profi le of fi nancial instruments

The maturity profi le of fi nancial assets and fi nancial liabilities held by the company and the Group are detailed below.

The following table details the Group’s exposure to interest rate risk as at 30 June 2007:

Fixed maturity dates

2007

Weighted

average

effective

interest rate

%

Variable

interest

rate

$’000

Less than

1 year

$’000

1–2

years

$’000

2–3

years

$’000

3–4

years

$’000

4–5

years

$’000

5+

years

$’000

Non

interest

bearing

$’000

Total

$’000

Financial assets:

Cash and cash

equivalents

5.8% 23,707 – – – – – – – 23,707

Trade receivables – – – – – – – – 45,177 45,177

Other deposits – – – – – – – – 1,142 1,142

23,707 – – – – – – 46,319 70,026

Financial liabilities:

Trade payables – – – – – – – – 168,196 168,196

Bank loans 6.8% 62,714 – 55,000 – – – – – 117,714

Bank overdraft 9.75% 635 – – – – – – – 635

Hire purchase lease

liabilities 7.2% – 67 18 – – – – – 85

Employee benefi ts – – – – – – – – 15,848 15,848

63,349 67 55,018 – – – – 184,044 302,478

The following table details the Group’s exposure to interest rate risk as at 30 June 2006:

Fixed maturity dates

2006

Weighted

average

effective

interest rate

%

Variable

interest

rate

$’000

Less

than

1 year

$’000

1–2

years

$’000

2–3

years

$’000

3–4

years

$’000

4–5

years

$’000

5+

years

$’000

Non

interest

bearing

$’000

Total

$’000

Financial assets:

Cash and cash

equivalents

4.9% 4,493 – – – – – – – 4,493

Trade receivables – – – – – – – – 28,282 28,282

Other deposits – – – – – – – – 1,131 1,131

4,493 – – – – – – 29,413 33,906

Financial liabilities:

Trade payables – – – – – – – – 114,650 114,650

Bank loans 6.0% 45,042 – – 55,000 – – – – 100,042

Hire purchase lease

liabilities

7.2% – 519 – – – – – – 519

Employee benefi ts – – – – – – – – 10,279 10,279

45,042 519 – 55,000 – – – 124,929 225,491


66

35. FINANCIAL INSTRUMENTS (cont.)

(e) Credit risk management

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in fi nancial loss to the

Group entity. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining suffi cient

collateral where appropriate, as a means of mitigating the risk of fi nancial loss from defaults. The Group’s exposure

and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions

concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are

reviewed and approved by the audit and risk committee annually.

The Group does not have any signifi cant credit risk exposure to any single counterparty or any Group of

counterparties having similar characteristics.

(f) Fair value of fi nancial instruments

The directors consider that the carrying amount of fi nancial assets and fi nancial liabilities recorded in the fi nancial

statements approximate their fair values (2006: net fair value).

(g) Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, who has built an appropriate

liquidity management framework for the management of the Group’s short, medium and long-term funding and

liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking

facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash fl ows and matching the

maturity profi les of fi nancial assets and liabilities.

36. GENERAL INFORMATION

The parent entity is JB Hi-Fi Limited, a listed public company, incorporated and operating in Australia and

New Zealand.

14 Spink Street, Brighton

Victoria 3186 Australia.

Telephone: (03) 8530 7333.


67

Distribution of holders of equity securities

Total Holders Units % Issued Capital

1 – 1,000 3,227 1,633,883 1.56

1,001 – 5,000 2,924 7,497,805 7.17

5,001 – 10,000 562 4,142,168 3.96

10,001 – 100,000 300 7,510,836 7.18

100,001 and over 47 83,844,053 80.13

Total 7,060 104,628,745 100

Holding less than a marketable parcel 45 1,005

Substantial shareholders


Ordinary shareholders Number %

Barclays Global Investors Australia Limited 8,231,330 7.87

Concord Capital 8,192,083 7.83

National Australia Bank Limited 7,707,934 7.37

Capital Group Companies 6,508,002 6.22

30,639,349 29.28

Twenty largest holders of ordinary securities:


Ordinary shareholders Number %

1. J P Morgan Nominees Australia Limited 19,624,243 18.76

2. HSBC Custody Nominees (Australia) Limited 15,840,804 15.14

3. National Nominees Limited 9,405,947 8.99

4. ANZ Nominees Limited 6,350,113 6.07

5. Mr Richard Uechtritz 4,000,000 3.82

6. Citicorp Nominees Pty Ltd 3,756,989 3.59

7. Cogent Nominees Pty Limited 3,650,434 3.49

8. Australian Reward Investment Alliance 2,271,658 2.17

9. Queensland Investment Corporation 1,597,151 1.53

10. Mr Terry Smart 1,494,345 1.43

11. Neweconomy Com AU Nominees Pty Limited 1,293,600 1.24

12. UBS Nominees Pty Ltd 1,248,271 1.19

13. Shawville Nominees Pty Ltd 1,178,100 1.13

14. Citicorp Nominees Pty Limited 1,163,099 1.11

15. Citicorp Nominees Pty Limited 1,065,693 1.02

16. Roseville Estate Pty Ltd 950,000 0.91

17. HSBC Custody Nominees (Australia) Limited - GSI ECSA 873,302 0.83

18. Cogent Nominees Pty Limited 811,304 0.78

19. HSBC Custody Nominees (Australia) Limited - A/C 2 778,784 0.74

20. Morgan Stanley Australia Securities (Nominee) Pty Limited 625,873 0.60

77,979,710 74.53

ADDITIONAL STOCK EXCHANGE INFORMATION as at 8 August 2007


68

This page has been left intentionally blank.


Financial SummaryCOMPANY SECRETARY

Richard Murray

SHARE REGISTRY

Computershare Investor Services Pty Limited

Yarra Falls 452 Johnston Street Abbotsford, Victoria, 3067, Australia

1300 302 417 (Australia)

+61 3 9615 5970

REGISTERED & PRINCIPAL ADMINISTRATION OFFICE

14 Spink Street Brighton, Victoria, 3186, Australia

+61 3 8530 7333

* Current as of 30 June 2007

STORE LOCATIONS

JB HI-FI STORES*

VIC

Ballarat

Brighton

Broadmeadows

Camberwell

Chadstone

Dandenong

Epping

Essendon

Frankston

Geelong

Heidelberg

Highpoint

Keilor

Knox

Maribyrnong

Melb City (Bourke Street,

Melb City (Elizabeth Street,

Lonsdale Street & Elizabeth Street

Cameras)

Narre Warren

Nunawading

Prahran

Preston

Ringwood

Southland

Watergardens

Werribee

NSW

Bondi

Castle Hill

Chatswood

Erina

Glendale

Hornsby

Leichhardt

Liverpool

Macarthur Square

Macquarie

Miranda

Mt Druitt

Newcastle

Parramatta

Penrith

Sydney City

Tuggerah

Warringah Mall

Woolongong

QLD

Brisbane City

Capalaba

Carindale

Chermside

Gold Coast

Indooroopilly

Ipswich

Kawana

Kedron

Loganholme

Macgregor

Robina

WA

Cannington

Midland Central

Myree

Osborne Park

Perth City

Whitford

SA

Adelaide City

Colonnades

Elizabeth

Marion

Modbury

ACT

Belconnen

Canberra City

Woden

NT

Casuarina

New Zealand

Queen St

CLIVE ANTHONYS*

QLD

Carseldine

Capalaba

Labrador

Mt Gravatt

Mermaid Waters

NSW

Tweed Heads

HILL & STEWART*

Auckland

Mt Wellington

St Lukes

Albany

Wairau Park

New Lynn

WestCity

Hobsonville

Botany Downs

Manuaku City

Pukekohe

Takanini

FINANCIAL PERFORMANCEYear to 30 June 2007 2003* 2004* 2005 2006 2007 %

Sale revenue ($m) 355.8 452.4 639.9 945.8 1,281.8 36%

EBIT ($m) 16.7 22.8 34.7 44.5 65.5 47%

NPAT ($m) 8.6 13.8 19.5 25.8 40.4 56%

Earnings per share 8.4 13.5 19.0 25.0 38.8 55%

*2001-2004 fi gures based on AGAAP

Sales +36%Sales grew 35.5% to

$1,281.8 million

2001

$154.9m

2002

$248.8m

2003

$355.8m

2004

$452.4m

2005

$693.9m

2006

$945.8m

2007

$1,281.8m

NPAT +56%Net profi t after tax grew

56.5% to $40.4 million

$2.6m

20022001

$6.2m

2003

$8.6m

2004

$13.8m

2005

$19.5m

2006

$25.8m

2007

$40.4m

Stores13 new stores were opened,

1 closed and 11 acquired,

taking the total stores to

89 at the year end

2001

15

2002

21

2003

26

2004

32

2005

48

2006

66

2007

89

2001

$5.7m

2002

$11.6m

2003

$16.7m

2004

$22.8m

2005

$34.7m

2006

$44.5m

2007

$65.5m

EBIT +47%Earnings before interest

and tax grew 47.3% to

$65.5 million


CORPORATE INFORMATIONABN 80 093 220 136

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ANNUAL REPORTjbhifi .com.au

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